Page 1 | Confidential and Proprietary Information
Fraud Risk in Micro-Entity
Audits
Not an all-bad news story 
Phil Cowpe...
Page 2 | Confidential and Proprietary Information
Fraud Risk Areas in Micro-Entity Audits
• Limited size of the management...
Page 3 | Confidential and Proprietary Information
Limited Size of the Management Team
• A strength and a weakness
• Manage...
Page 4 | Confidential and Proprietary Information
Possible Audit Responses
• Direct communication with/observation of seni...
Page 5 | Confidential and Proprietary Information
Weak or Indifferent Tone at the Top
• Strong interest in “getting it rig...
Page 6 | Confidential and Proprietary Information
Possible Audit Responses
• Do you really want the business?
• Direct obs...
Page 7 | Confidential and Proprietary Information
Related Party Transactions
• Understand the cultural norms
• Looking for...
Page 8 | Confidential and Proprietary Information
Possible Audit Responses
• Heightened skepticism always needed
• Know th...
Page 9 | Confidential and Proprietary Information
Changes in Business Conditions
• Management’s personal financial situati...
Page 10 | Confidential and Proprietary Information
Possible Audit Responses
• Skepticism needed
• Know the industry/busine...
Page 11 | Confidential and Proprietary Information
ISA 240 – A Great Place to Start
Appendix 1 – Examples of Fraud Risk Fa...
www.ifac.org/SMP
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Phil Cowperthwaite Fraud Risk In Micro Entity Audits

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SMP Committee Train the Trainers' Seminar in Kampala, Uganda, June 4, 2013

Published in: Business, Economy & Finance
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Phil Cowperthwaite Fraud Risk In Micro Entity Audits

  1. 1. Page 1 | Confidential and Proprietary Information Fraud Risk in Micro-Entity Audits Not an all-bad news story  Phil Cowperthwaite IFAC SMP Committee Member Trainers’ Seminar June 4, 2013 Kampala, Uganda
  2. 2. Page 2 | Confidential and Proprietary Information Fraud Risk Areas in Micro-Entity Audits • Limited size of the management team • Weak or indifferent tone at the top • Related party transactions • Changes in business conditions • Others specific to your region?
  3. 3. Page 3 | Confidential and Proprietary Information Limited Size of the Management Team • A strength and a weakness • Management control vs. override • Generally few lines of business • Operations usually not complex • Estimates usually not complex
  4. 4. Page 4 | Confidential and Proprietary Information Possible Audit Responses • Direct communication with/observation of senior management • Know the industry/business • Staff the audit appropriately • Work on site • Review the general ledger for the year • Do something unpredictable ISA 240.29(c)
  5. 5. Page 5 | Confidential and Proprietary Information Weak or Indifferent Tone at the Top • Strong interest in “getting it right” a big strength • Weak management – independence issues? • Management indifferent to financial reporting
  6. 6. Page 6 | Confidential and Proprietary Information Possible Audit Responses • Do you really want the business? • Direct observation of senior management • Know the industry/business • Staff audits appropriately • Work on site • Assist management in FS preparation
  7. 7. Page 7 | Confidential and Proprietary Information Related Party Transactions • Understand the cultural norms • Looking for high risk areas, not the everyday • There may be sound business reasons • Lack of complexity can help with identification
  8. 8. Page 8 | Confidential and Proprietary Information Possible Audit Responses • Heightened skepticism always needed • Know the industry/business • Know your client • Discussion with senior management • Direct observation of senior management • Staff audits appropriately • Work on site
  9. 9. Page 9 | Confidential and Proprietary Information Changes in Business Conditions • Management’s personal financial situation • Changes in product demand/general economy • Staff turnover/change in assignments • Heightened skepticism needed • Lack of complexity can help with identification
  10. 10. Page 10 | Confidential and Proprietary Information Possible Audit Responses • Skepticism needed • Know the industry/business • Know your client • Discussion with senior management • Direct observation of senior management • Staff audits appropriately • Work on site
  11. 11. Page 11 | Confidential and Proprietary Information ISA 240 – A Great Place to Start Appendix 1 – Examples of Fraud Risk Factors Appendix 2 – Possible Audit Procedures to Address Risks of Material Misstatement Due to Fraud Appendix 3 – Examples of Circumstances that Indicate the Possibility of Fraud • Considerations at the assertion level • Fraudulent Financial Reporting • Misappropriation of assets
  12. 12. www.ifac.org/SMP

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