The document discusses the differences and relationships between fraud and error in accounting. It notes that fraud is intentional while error can occur due to misinterpretation or incorrect accounting. Management has primary responsibility for preventing and detecting fraud and establishing proper internal controls and corporate governance. Auditors are responsible for obtaining reasonable assurance about whether the financial statements are free of material misstatement due to fraud or error. If fraud is suspected, auditors should perform additional testing, discuss with management, and consider reporting and legal impacts. The document also covers auditor responsibilities and potential criminal and civil liabilities related to negligence.

1. Fraud v Error

2. Fraud v Error
Intentional

3. Fraud v Error
Intentional

4. Fraud v Error
Intentional
Misinterpretation

5. Fraud v Error
Intentional
Misinterpretation

6. Fraud v Error
Intentional
Misinterpretation
Incorrect Accounting

7. Fraud v Error
Intentional
Misinterpretation
Incorrect Accounting

8. Fraud v Error
Intentional
Misinterpretation
Incorrect Accounting
There may be requirements to report suspicions of fraud,
but not error

9. Management v Auditor

10. Management v Auditor
Prepare T&F

11. Management v Auditor
Prepare T&F

12. Management v Auditor
Prepare T&F
Prevent & Detect Fraud

13. Management v Auditor
Prepare T&F
Prevent & Detect Fraud

14. Management v Auditor
Prepare T&F
Prevent & Detect Fraud
Internal Controls

15. Management v Auditor
Prepare T&F
Prevent & Detect Fraud
Internal Controls
Good Corporate Governance

16. Management v Auditor

17. Management v Auditor
Report on T&F

18. Management v Auditor
Report on T&F

19. Management v Auditor
Report on T&F
Reasonable Assurance Fraud & ERROR

20. Management v Auditor
Report on T&F
Reasonable Assurance Fraud & ERROR

21. Management v Auditor
Report on T&F
Reasonable Assurance Fraud & ERROR
Primary F&E responsibility lies with management

22. Management v Auditor
Report on T&F
Reasonable Assurance Fraud & ERROR
Primary F&E responsibility lies with management
consider the risk of material misstatement

23. Management v Auditor

24. Management v Auditor
Reduce fraud opportunities

25. Management v Auditor
Reduce fraud opportunities
Establish a culture where no fraud

26. Management v Auditor
Reduce fraud opportunities
Establish a culture where no fraud
due to the likelihood of detection

27. Professional Scepticism

28. Professional Scepticism
Discuss fraud within specific characteristics of
the audit & potential effect on FS

29. Professional Scepticism
Discuss fraud within specific characteristics of
the audit & potential effect on FS

30. Professional Scepticism
Discuss fraud within specific characteristics of
the audit & potential effect on FS
Talk to management about controls to detect or
prevent fraud

31. Professional Scepticism
Discuss fraud within specific characteristics of
the audit & potential effect on FS
Talk to management about controls to detect or
prevent fraud
Obtain evidence that fraud has not occurred or
detected and corrected

32. Fraud/Error is Suspected?

33. Fraud/Error is Suspected?

34. Fraud/Error is Suspected? Effect on FS?

35. Fraud/Error is Suspected? Effect on FS?

36. Fraud/Error is Suspected? Effect on FS?
Document in
Audit files

37. Fraud/Error is Suspected? Effect on FS?
Document in
Audit files

38. Fraud/Error is Suspected? Effect on FS?
Additional Document in
Testing? Audit files

39. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Additional Document in
Testing? Audit files

40. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Additional Document in
Testing? Audit files

41. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files

42. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files

43. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Discuss with
Management

44. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Discuss with
Management
Tell them to get
legal
advice if fraud is
suspected

45. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Discuss with
Management
Tell them to get
legal
advice if fraud is
suspected

46. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Discuss with If Management
Management
Tell them to get Suspected?
legal
advice if fraud is
suspected

47. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Discuss with If Management
Management
Tell them to get Suspected?
legal Get legal advice or rarely resign
advice if fraud is
suspected

48. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Discuss with If Management
Management
Tell them to get Suspected?
legal Get legal advice or rarely resign
advice if fraud is
suspected

49. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Consider
Discuss with If Management Report
Management
Tell them to get Suspected? Impact
legal Get legal advice or rarely resign
advice if fraud is
suspected

50. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Consider
Discuss with If Management Report
Management
Tell them to get Suspected? Impact
legal Get legal advice or rarely resign
advice if fraud is
suspected

51. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Consider
Discuss with If Management Report
Management
Tell them to get Suspected? Impact
legal Get legal advice or rarely resign
advice if fraud is
suspected
Report to
Authorities?

52. Fraud/Error is Suspected? Effect on FS?
Extent of misstatement
Effect on Additional Document in
Risk? Testing? Audit files
Consider
Discuss with If Management Report
Management
Tell them to get Suspected? Impact
legal Get legal advice or rarely resign
advice if fraud is
suspected
Report to
Authorities?
Consider Confidentiality

53. The Auditor - Criminal Liability

54. The Auditor - Criminal Liability
Accepting appointment without being qualified

55. The Auditor - Criminal Liability
Accepting appointment without being qualified
Being involved with fraud

56. The Auditor - Criminal Liability
Accepting appointment without being qualified
Being involved with fraud
Insider Dealing

57. The Auditor - Criminal Liability
Accepting appointment without being qualified
Being involved with fraud
Insider Dealing
Money Laundering

58. The Auditor - Civil Liability

59. The Auditor - Civil Liability
Negligent (careless) auditing

60. The Auditor - Civil Liability
Negligent (careless) auditing
Sued by Client company under contract law

61. The Auditor - Civil Liability
Negligent (careless) auditing
Sued by Client company under contract law
Sued by banks etc under negligence

62. The Auditor - Duty of skill & Care

63. The Auditor - Duty of skill & Care
Depends on the circumstance

64. The Auditor - Duty of skill & Care
Depends on the circumstance
eg. Accepting the word of management after
suspicion is aroused

65. The Auditor - Duty of skill & Care
Depends on the circumstance
eg. Accepting the word of management after
suspicion is aroused
Follow ISAs and show this in working papers

66. The Auditor - Professional competence

67. The Auditor - Professional competence
Achieve, and maintain, professional knowledge

68. The Auditor - Professional competence
Achieve, and maintain, professional knowledge
eg. Formal & Informal training + experience

69. The Auditor - Professional competence
Achieve, and maintain, professional knowledge
eg. Formal & Informal training + experience
Awareness of general business developments,
such as dropbox and e-commerce

70. The Auditor - Due care

71. The Auditor - Due care
Acting diligently in accordance with technical and
professional standards

72. The Auditor - Due care
Acting diligently in accordance with technical and
professional standards
means applying knowledge minimising the
chance of mistakes
being made

73. The Auditor - Due care
Acting diligently in accordance with technical and
professional standards
means applying knowledge minimising the
chance of mistakes
being made
Enough time to complete work with due care
Staff fully understand the objectives

74. The Auditor - Negligence - A Civil Wrong

75. The Auditor - Negligence - A Civil Wrong
Duty of Care

76. The Auditor - Negligence - A Civil Wrong
Duty of Care
Duty is broken

77. The Auditor - Negligence - A Civil Wrong
Duty of Care
Duty is broken
Damage results

78. The Auditor - Negligence - A Civil Wrong
Duty of Care
Duty is broken
Damage results
The auditor does not exist to aid investment decisions,
unless verbal assurances given

79. Fraudulent Financial Reporting

80. Fraudulent Financial Reporting
Intentional
Misstatement!

81. Fraudulent Financial Reporting

82. Fraudulent Financial Reporting
Manipulation

83. Fraudulent Financial Reporting
Manipulation
Misrepresentation

84. Fraudulent Financial Reporting
Manipulation
Misrepresentation
Misapplication

85. Fraudulent Financial Reporting
Manipulation
Misrepresentation
Misapplication
Earnings Management