Fraudulent financial reporting generally involves the recording of fraudulent journal entries,
particularly those involving post-closing adjustments and other types of nonstandard journal
entries.Auditors’ responsibility with respect to fraud, as presented in AU Section 316,
Consideration of Fraud in a Financial Statement Audit, requires auditors to presume that the risk
of management override of controls is always present and to test journal entries and other
adjustments for indications of possible material misstatements due to fraud.
Describes fraud and its characteristics.
SAS 99 defines fraud as an intentional act that results in a material misstatement that are done
financial statements. There are two types of fraud considered: misstatements arising from
fraudulent financial reporting and misstatements arising from misappropriation of assets . The
standard describes the fraud triangle. Generally, the three ‘fraud triangle’ conditions are present
when fraud occurs. First, there is an incentive or pressure that provides a reason to commit fraud.
Second, there is an opportunity for fraud to be perpetrated (e.g. absence of controls, ineffective
controls, or the ability of management to override controls.) Third, the individuals committing
the fraud possess an attitude that enables them to rationalize the fraud.
Requires sessions to discuss how and where the entity’s financial statements might be
susceptible to material misstatement due to fraud.
This requirement is a new concept in audit standards and it has two primary objectives. The first
objective is so the engagement team will have an opportunity for the seasoned team members to
share their experiences with the client and how a fraud might be perpetrated and concealed. The
second objective is to set the proper “tone at the top” for conducting the engagement. The
brainstorming session is to be conducted in a manner that models the proper degree of
professional skepticism and sets the culture for the entire audit.
The following steps involved in testing journal entries and other adjustments are addressed in
this Practice Aid and generally occur in the following order:
Step 1: Consider the risks of material misstatement due to fraud identified in planning the
engagement and their effect on the nature and extent of journal entry testing.
Step 2: Obtain an understanding of the entity’s financial reporting processes and the controls
over journal entries and other adjustments.
Step 3: Perform audit procedures to determine the completeness of the population of journal
entries and other adjustments.
Step 4: Identify and select journal entries and other adjustments for testing.
Step 5: Perform journal entry audit procedures, gather sufficient evidence, and document results.
The auditor should gather information necessary to identify risks of material misstatement due to
fraud by the following
SAS 99 requires auditors to ask management questions about their awareness and understanding
of fraud. Au.
Fraudulent financial reporting generally involves the recording of f.pdf
1. Fraudulent financial reporting generally involves the recording of fraudulent journal entries,
particularly those involving post-closing adjustments and other types of nonstandard journal
entries.Auditors’ responsibility with respect to fraud, as presented in AU Section 316,
Consideration of Fraud in a Financial Statement Audit, requires auditors to presume that the risk
of management override of controls is always present and to test journal entries and other
adjustments for indications of possible material misstatements due to fraud.
Describes fraud and its characteristics.
SAS 99 defines fraud as an intentional act that results in a material misstatement that are done
financial statements. There are two types of fraud considered: misstatements arising from
fraudulent financial reporting and misstatements arising from misappropriation of assets . The
standard describes the fraud triangle. Generally, the three ‘fraud triangle’ conditions are present
when fraud occurs. First, there is an incentive or pressure that provides a reason to commit fraud.
Second, there is an opportunity for fraud to be perpetrated (e.g. absence of controls, ineffective
controls, or the ability of management to override controls.) Third, the individuals committing
the fraud possess an attitude that enables them to rationalize the fraud.
Requires sessions to discuss how and where the entity’s financial statements might be
susceptible to material misstatement due to fraud.
This requirement is a new concept in audit standards and it has two primary objectives. The first
objective is so the engagement team will have an opportunity for the seasoned team members to
share their experiences with the client and how a fraud might be perpetrated and concealed. The
second objective is to set the proper “tone at the top” for conducting the engagement. The
brainstorming session is to be conducted in a manner that models the proper degree of
professional skepticism and sets the culture for the entire audit.
The following steps involved in testing journal entries and other adjustments are addressed in
this Practice Aid and generally occur in the following order:
Step 1: Consider the risks of material misstatement due to fraud identified in planning the
engagement and their effect on the nature and extent of journal entry testing.
Step 2: Obtain an understanding of the entity’s financial reporting processes and the controls
over journal entries and other adjustments.
Step 3: Perform audit procedures to determine the completeness of the population of journal
entries and other adjustments.
Step 4: Identify and select journal entries and other adjustments for testing.
Step 5: Perform journal entry audit procedures, gather sufficient evidence, and document results.
The auditor should gather information necessary to identify risks of material misstatement due to
fraud by the following
2. SAS 99 requires auditors to ask management questions about their awareness and understanding
of fraud. Auditors will then make a decision as to whether they need to ‘educate’ management
about fraud and the types of controls that will deter and detect fraud. The standard also requires
auditors to make inquiries of the audit committee, internal audit personnel and others within the
entity.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
Importance of Internal Controls
It is important to emphasize that a company’s internal controls surrounding the journal entry
process will It is important to emphasize that a company’s internal controls surrounding the
journal entry process will adjustments. Indeed, assessment of controls is often an integral
component of the journal entry testing process. Internal controls that are commonly evaluated
regarding journal entries are:
• Segregation of duties regarding the authorizing, posting, reviewing and reconciling of journal
entries;
• Access rights controlling who is authorized – and not authorized – to record and approve
journal entriesin a company’s accounting system;
• Oversight of the journal entry-posting process by members of management, internal auditors, or
others, including post-entry review;
• Regular testing of controls, including those surrounding journal entries, by the company’s
internal auditors, if any.
Provides guidance regarding the auditor’s communications about fraud to management, the audit
committee, and others.
The standard requires that any evidence that fraud may exist must be communicated to
management and others. The level of severity is insignificant.
Describes documentation requirements.
SAS 99 significantly extends the documentation requirements of the previous standard. Auditors
must document: (1) how and when the brainstorming session occurred and who participated, (2)
3. procedures performed to obtain information to identify and assess fraud risk, (3) specific risks of
material misstatement due to fraud (must specifically include discussion of revenue recognition)
and the auditor’s response to those risks, (4) results of the procedures performed to address the
risk of management override of controls, (5) conditions and analytical relationships that led to
additional audit procedures or other responses, and (6) nature of communications about fraud
made to management and others.
Solution
Fraudulent financial reporting generally involves the recording of fraudulent journal entries,
particularly those involving post-closing adjustments and other types of nonstandard journal
entries.Auditors’ responsibility with respect to fraud, as presented in AU Section 316,
Consideration of Fraud in a Financial Statement Audit, requires auditors to presume that the risk
of management override of controls is always present and to test journal entries and other
adjustments for indications of possible material misstatements due to fraud.
Describes fraud and its characteristics.
SAS 99 defines fraud as an intentional act that results in a material misstatement that are done
financial statements. There are two types of fraud considered: misstatements arising from
fraudulent financial reporting and misstatements arising from misappropriation of assets . The
standard describes the fraud triangle. Generally, the three ‘fraud triangle’ conditions are present
when fraud occurs. First, there is an incentive or pressure that provides a reason to commit fraud.
Second, there is an opportunity for fraud to be perpetrated (e.g. absence of controls, ineffective
controls, or the ability of management to override controls.) Third, the individuals committing
the fraud possess an attitude that enables them to rationalize the fraud.
Requires sessions to discuss how and where the entity’s financial statements might be
susceptible to material misstatement due to fraud.
This requirement is a new concept in audit standards and it has two primary objectives. The first
objective is so the engagement team will have an opportunity for the seasoned team members to
share their experiences with the client and how a fraud might be perpetrated and concealed. The
second objective is to set the proper “tone at the top” for conducting the engagement. The
brainstorming session is to be conducted in a manner that models the proper degree of
professional skepticism and sets the culture for the entire audit.
The following steps involved in testing journal entries and other adjustments are addressed in
this Practice Aid and generally occur in the following order:
Step 1: Consider the risks of material misstatement due to fraud identified in planning the
4. engagement and their effect on the nature and extent of journal entry testing.
Step 2: Obtain an understanding of the entity’s financial reporting processes and the controls
over journal entries and other adjustments.
Step 3: Perform audit procedures to determine the completeness of the population of journal
entries and other adjustments.
Step 4: Identify and select journal entries and other adjustments for testing.
Step 5: Perform journal entry audit procedures, gather sufficient evidence, and document results.
The auditor should gather information necessary to identify risks of material misstatement due to
fraud by the following
SAS 99 requires auditors to ask management questions about their awareness and understanding
of fraud. Auditors will then make a decision as to whether they need to ‘educate’ management
about fraud and the types of controls that will deter and detect fraud. The standard also requires
auditors to make inquiries of the audit committee, internal audit personnel and others within the
entity.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
SAS 99 provides specific examples of programs and controls for both large and small businesses.
The auditor should consider which controls mitigate the identified fraud risks.
Importance of Internal Controls
It is important to emphasize that a company’s internal controls surrounding the journal entry
process will It is important to emphasize that a company’s internal controls surrounding the
journal entry process will adjustments. Indeed, assessment of controls is often an integral
component of the journal entry testing process. Internal controls that are commonly evaluated
regarding journal entries are:
• Segregation of duties regarding the authorizing, posting, reviewing and reconciling of journal
entries;
• Access rights controlling who is authorized – and not authorized – to record and approve
journal entriesin a company’s accounting system;
• Oversight of the journal entry-posting process by members of management, internal auditors, or
others, including post-entry review;
5. • Regular testing of controls, including those surrounding journal entries, by the company’s
internal auditors, if any.
Provides guidance regarding the auditor’s communications about fraud to management, the audit
committee, and others.
The standard requires that any evidence that fraud may exist must be communicated to
management and others. The level of severity is insignificant.
Describes documentation requirements.
SAS 99 significantly extends the documentation requirements of the previous standard. Auditors
must document: (1) how and when the brainstorming session occurred and who participated, (2)
procedures performed to obtain information to identify and assess fraud risk, (3) specific risks of
material misstatement due to fraud (must specifically include discussion of revenue recognition)
and the auditor’s response to those risks, (4) results of the procedures performed to address the
risk of management override of controls, (5) conditions and analytical relationships that led to
additional audit procedures or other responses, and (6) nature of communications about fraud
made to management and others.