This document discusses the roles and responsibilities of external auditors. It begins by explaining that external auditors provide reasonable but not absolute assurance that financial statements are free from material misstatement. It then covers auditor competency, the different types of audit reports, and the purpose of the audit report. Finally, it discusses public company oversight by the PCAOB and key auditing standards. The document provides an overview of the expectations and regulatory requirements for external auditors.
The document outlines rules for accrediting external auditors and auditing firms to conduct verification of documents submitted by distribution utilities for compliance with the Energy Regulatory Commission. It establishes qualification requirements like experience and licensure. Applicants must submit documents including an application, resume, licenses and proof of experience. The rules aim to ensure a fair process and that accredited professionals are qualified to audit utility cost adjustments and charges.
The document discusses several ethical issues and dilemmas faced by an accountant working for a garments manufacturing company. The main issues include:
1) Cash payments being made to major customers for bulk discounts, instead of issuing proper receipts. This could indicate impropriety.
2) Significant delays in paying worker wages and overtime payments, as well as mismatches between production and inventory records.
3) The company submitting tax returns based on fake sales figures and tampered vouchers, raising the risk of penalties.
As the professional accountant, the appropriate responses are to investigate the discrepancies independently, ensure workers are paid properly, and advise correcting any fraudulent tax submissions to avoid penalties. Maintaining integrity and
The document provides solutions to questions on company law for an accounting technician exam in Malawi. It covers topics such as the duties of promoters, pre-incorporation contracts, the significance of a company's memorandum and articles of association, share certificates, share transfers, the principle of corporate personality, fixed and floating charges, receivers, prospectuses, and ways an individual can become or cease being a member of a company limited by shares. The solutions are detailed and provide explanations and references to relevant sections of Malawi's Companies Act.
The document provides information about an audit planning meeting for the audit of Holiday Resort Limited. It discusses several issues that have arisen, including:
1) The general manager of the resort offering the audit team a free stay at the resort as a token of appreciation.
2) A request from audit team members to participate in an internal bidding process for disposed assets of another audit client, Alpha Technologies Limited.
3) Situations that could impair an auditor's independence, such as providing taxation or accounting services to a client, and ways to minimize the effects.
The summary provides a high-level overview of the key topics and issues discussed in the document in 3 sentences or less.
1. The document outlines a corporate law exam with 8 multi-part questions assessing knowledge of procedures under the Companies Act 1994 regarding shares and dividends of deceased shareholders, liability of companies for incorrect share transfers, procedures for declaring dividends in AGMs, director resignation and appointment processes, validity of shareholder-convened company meetings, positions that can be held according to corporate governance guidelines, statutory timelines and responsibilities for company financial reporting and AGMs, auditor responsibilities and reports for banks, and restrictions on business activities of financial institutions.
2. It provides a table outlining the statutory timelines and deadlines for various tasks involved in company financial reporting and the holding of an AGM and EGM, including preparation of
The document is a knowledge level exam paper from the Institute of Chartered Accountants of Bangladesh. It contains questions on assurance, internal control, internal and external audit. The paper covers key concepts in these areas like the two types of assurance engagements, objectives of internal control, components of internal control like control environment and risk assessment process, roles of internal and external audit functions and key differences between them. It provides suggested answers to questions testing understanding of these fundamental assurance, internal control and audit concepts.
The document is a multi-part question regarding taxation issues. It includes questions about: 1) how to properly handle an antedated tax assessment acknowledgement and unethical advice from a supervisor, 2) grounds for appeal of a tax assessment disallowing technical fees and employee welfare expenses, and 3) evaluating options for the acquisition of a biscuit brand from the perspective of direct tax implications.
The document is a multi-part exam on financial management. It includes questions on:
1) Calculating the value of a company before and after a recapitalization plan involving debt issuance and share repurchases.
2) Comparing coupon bonds and zero coupon bonds for raising capital.
3) Calculating a company's weighted average cost of capital and cost of equity using different models.
4) Evaluating investment opportunities using net present value and internal rate of return.
The summary provides a high-level overview of the various financial questions covered in the exam without including details on calculations or answers. It focuses on the essential topics and scope covered in the document's questions in 3 sentences.
The document outlines rules for accrediting external auditors and auditing firms to conduct verification of documents submitted by distribution utilities for compliance with the Energy Regulatory Commission. It establishes qualification requirements like experience and licensure. Applicants must submit documents including an application, resume, licenses and proof of experience. The rules aim to ensure a fair process and that accredited professionals are qualified to audit utility cost adjustments and charges.
The document discusses several ethical issues and dilemmas faced by an accountant working for a garments manufacturing company. The main issues include:
1) Cash payments being made to major customers for bulk discounts, instead of issuing proper receipts. This could indicate impropriety.
2) Significant delays in paying worker wages and overtime payments, as well as mismatches between production and inventory records.
3) The company submitting tax returns based on fake sales figures and tampered vouchers, raising the risk of penalties.
As the professional accountant, the appropriate responses are to investigate the discrepancies independently, ensure workers are paid properly, and advise correcting any fraudulent tax submissions to avoid penalties. Maintaining integrity and
The document provides solutions to questions on company law for an accounting technician exam in Malawi. It covers topics such as the duties of promoters, pre-incorporation contracts, the significance of a company's memorandum and articles of association, share certificates, share transfers, the principle of corporate personality, fixed and floating charges, receivers, prospectuses, and ways an individual can become or cease being a member of a company limited by shares. The solutions are detailed and provide explanations and references to relevant sections of Malawi's Companies Act.
The document provides information about an audit planning meeting for the audit of Holiday Resort Limited. It discusses several issues that have arisen, including:
1) The general manager of the resort offering the audit team a free stay at the resort as a token of appreciation.
2) A request from audit team members to participate in an internal bidding process for disposed assets of another audit client, Alpha Technologies Limited.
3) Situations that could impair an auditor's independence, such as providing taxation or accounting services to a client, and ways to minimize the effects.
The summary provides a high-level overview of the key topics and issues discussed in the document in 3 sentences or less.
1. The document outlines a corporate law exam with 8 multi-part questions assessing knowledge of procedures under the Companies Act 1994 regarding shares and dividends of deceased shareholders, liability of companies for incorrect share transfers, procedures for declaring dividends in AGMs, director resignation and appointment processes, validity of shareholder-convened company meetings, positions that can be held according to corporate governance guidelines, statutory timelines and responsibilities for company financial reporting and AGMs, auditor responsibilities and reports for banks, and restrictions on business activities of financial institutions.
2. It provides a table outlining the statutory timelines and deadlines for various tasks involved in company financial reporting and the holding of an AGM and EGM, including preparation of
The document is a knowledge level exam paper from the Institute of Chartered Accountants of Bangladesh. It contains questions on assurance, internal control, internal and external audit. The paper covers key concepts in these areas like the two types of assurance engagements, objectives of internal control, components of internal control like control environment and risk assessment process, roles of internal and external audit functions and key differences between them. It provides suggested answers to questions testing understanding of these fundamental assurance, internal control and audit concepts.
The document is a multi-part question regarding taxation issues. It includes questions about: 1) how to properly handle an antedated tax assessment acknowledgement and unethical advice from a supervisor, 2) grounds for appeal of a tax assessment disallowing technical fees and employee welfare expenses, and 3) evaluating options for the acquisition of a biscuit brand from the perspective of direct tax implications.
The document is a multi-part exam on financial management. It includes questions on:
1) Calculating the value of a company before and after a recapitalization plan involving debt issuance and share repurchases.
2) Comparing coupon bonds and zero coupon bonds for raising capital.
3) Calculating a company's weighted average cost of capital and cost of equity using different models.
4) Evaluating investment opportunities using net present value and internal rate of return.
The summary provides a high-level overview of the various financial questions covered in the exam without including details on calculations or answers. It focuses on the essential topics and scope covered in the document's questions in 3 sentences.
The document discusses suggested answers for the CA Professional Stage Knowledge Level exam for November-December 2016. It includes suggested answers on topics like assurance, accounting, taxation, business and finance, management information, business and company law, and information technology. The document is published by the Institute of Chartered Accountants of Bangladesh and contains the copyright information.
This document provides an overview of audit and assurance for the ICAB application level. It covers topics such as the definition of an assurance engagement and its key elements. It distinguishes between reasonable and limited assurance engagements. It defines an audit and outlines the auditor's responsibility to express an opinion on whether financial statements are prepared in accordance with the applicable financial reporting framework. The document also discusses the limitations of assurance and why absolute assurance is not provided. It includes sample questions to test understanding of topics covered.
This document provides sample answers for questions on the Taxation-1 exam for the Professional Stage (Knowledge Level) in Bangladesh. It includes answers on topics like how governments use taxation to manage economies, who is liable for tax and on what types of income, the concept of tax residency, definitions of terms like perquisite, consequences of failing to deduct tax, short notes on topics like tax avoidance and evasion, and procedures for applying for tax holidays. The document is intended as a reference for those preparing to take the Taxation-1 professional exam.
Sheridan Audio Visual Ltd's application for an audit has been approved. The letter outlines legal requirements for private limited companies in the audit process, including appointing an auditor, filing annual returns and financial statements, holding annual general meetings, and preparing director's reports. It also details statutory duties of auditors and directors for financial reporting, and advantages of undergoing an audit such as meeting regulatory requirements, improving accounting systems, and enhancing credibility.
This GAAP takes the viewer through the differences between Indian GAAP and IFRS under to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
AUDIT ASSIGNMENT- M.COM PART II – SEMESTER IV, AUDIT REPORT, CARO 2015, AUDIT REPORT OF JINDAL STEEL & POWER LIMITED, SA 230 AUDIT DOCUMENTATION (REVISED), SA 500: AUDIT EVIDENCE.
FiZy Bhd experienced significant losses in recent years and proposed a capital rearrangement scheme to ensure the company's survival. The scheme involved reducing ordinary share values, exchanging preference shares for new preference and ordinary shares, issuing shares to settle debt with debenture holders and directors, selling investments, paying creditors, writing off losses and revaluing assets.
The document discusses various methods of company reconstruction including internal and external reorganization. Internal reorganization involves altering a company's capital structure through actions like changing authorized capital, reducing paid up capital, issuing bonus shares, or redeeming preference shares. External reorganization involves arrangements with outsiders such as disposing of assets/liabilities, debt restructuring schemes, business combinations, or devising a scheme to avoid liquidation. Specific examples and journal entries are provided to illustrate reduction of paid up capital through cancellation of losses or uncalled capital. The overall goal of reconstruction is to help distressed companies adapt, restructure finances, and potentially avoid liquidation.
The document discusses various types of tax assessments in Bangladesh, including:
1) Provisional assessment allows preliminary assessment based on filed returns while regular assessment follows.
2) Assessment based on correct returns is made within 30 days of filing without requiring further evidence.
3) Universal self-assessment deems the tax paid upon filing a complete return as the final assessment for the year.
4) There are also specialized assessments for situations like businesses discontinuing, persons leaving the country, and income escaping assessment.
The document discusses how Schedule III of the Companies Act 2013 provides increased transparency and easier comparison of financial statements for general investors. It analyzes and compares the balance sheets and profit/loss statements of Grasim Industries and Century Textiles using various financial ratios like P/E ratio, profitability ratios, and liquidity/solvency ratios. The analysis finds that while Grasim Industries has stronger profitability, Century Textiles has higher debt levels. Overall, Schedule III and analysis of financial statements through ratios helps investors evaluate companies.
This document does not contain a summary as it is a collection of fragmented text and does not convey complete ideas or information. The document includes discussions of auditor independence, contingent fees, threats to objectivity, and other audit-related topics but does not integrate these ideas into coherent paragraphs or provide an overall summary.
This presentation takes one through the basic mistakes often made while performing the internal audit function and calls for introspection of the internal audit function on a timely basis. It also defines the manner in which an internal audit function is to be approached.
- Financial statements include the balance sheet, income statement, cash flow statement, and notes. They provide information on a company's financial position and performance.
- The balance sheet presents a snapshot of a company's assets, liabilities, and equity on a given date. It provides information on a company's worth and financial position.
- The income statement is prepared to determine the profit or loss of a company over a period of time. It shows operating performance.
- Managerial remuneration is calculated as a percentage of company profits and has limits set by the Companies Act based on the number of managing directors and effective capital. Certain items are excluded from profits in calculating remuneration.
Companies Amendment Act,2014 & Important Provisions Eswaramoorthy P
The document summarizes key provisions from the Companies (Amendment) Bill, 2014 relating to amendments in the Companies Act, 2013. Some of the key changes include:
1. Omitting the requirement for minimum paid up share capital and making common seal optional to ease doing business.
2. Prescribing specific punishments for deposits accepted under the new Act which was inadvertently left out previously.
3. Prohibiting public inspection of board resolutions filed with the Registrar of Companies to meet corporate demands.
4. Including provisions for writing off past losses/depreciation before declaring dividends and rectifying requirements for transferring shares for unclaimed dividends.
The document provides
Knowledge level icab class lectures
Knowledge level icab class lectures
Knowledge level icab class lectures
Knowledge level icab class lectures
Knowledge level icab class lectures
Tutorial 6 -_company_reconstruction_answer (1)kim rae KI
This document provides an example solution to a company reconstruction tutorial question. It includes journal entries to record various transactions as part of the reconstruction, including a capital reduction, debt for equity swap, asset sale, and share conversions. It also presents the post-reconstruction statement of financial position, showing the company's assets, liabilities and shareholders' equity after implementing the reconstruction plan.
Mayur Jain is a Chartered Accountant working as an Assurance Executive at S.R. Batliboi & Co., LLP (Ernst & Young) since 2016. He has experience auditing several automotive ancillary companies. Some of the clients he has worked with include Lumax Auto Technologies, Hitachi Chemical India, Minda Furukawa Electric, and Nissin Brake India. For these audits, he has tested compliance with Indian GAAP, audited various areas of financial statements, and certified internal control over financial reporting. He also has experience with transfer pricing certification and working independently with clients like Japan Steel Works India. Prior to this, he completed his articleship and gained experience
The presentation provided an overview of the internal audit department's organization, mission, and 2009/10 audit plan for the audit committee. It discussed the department's responsibilities in providing independent assurance and consulting services. It also outlined the audit approach, including risk-based planning and a rating system for audit reports. Quality assurance processes were reviewed, including onboarding, training, performance reviews, and internal/external reviews. The benefits of internal audit for ensuring adherence to policies and ongoing risk management were also highlighted.
The document discusses suggested answers for the CA Professional Stage Knowledge Level exam for November-December 2016. It includes suggested answers on topics like assurance, accounting, taxation, business and finance, management information, business and company law, and information technology. The document is published by the Institute of Chartered Accountants of Bangladesh and contains the copyright information.
This document provides an overview of audit and assurance for the ICAB application level. It covers topics such as the definition of an assurance engagement and its key elements. It distinguishes between reasonable and limited assurance engagements. It defines an audit and outlines the auditor's responsibility to express an opinion on whether financial statements are prepared in accordance with the applicable financial reporting framework. The document also discusses the limitations of assurance and why absolute assurance is not provided. It includes sample questions to test understanding of topics covered.
This document provides sample answers for questions on the Taxation-1 exam for the Professional Stage (Knowledge Level) in Bangladesh. It includes answers on topics like how governments use taxation to manage economies, who is liable for tax and on what types of income, the concept of tax residency, definitions of terms like perquisite, consequences of failing to deduct tax, short notes on topics like tax avoidance and evasion, and procedures for applying for tax holidays. The document is intended as a reference for those preparing to take the Taxation-1 professional exam.
Sheridan Audio Visual Ltd's application for an audit has been approved. The letter outlines legal requirements for private limited companies in the audit process, including appointing an auditor, filing annual returns and financial statements, holding annual general meetings, and preparing director's reports. It also details statutory duties of auditors and directors for financial reporting, and advantages of undergoing an audit such as meeting regulatory requirements, improving accounting systems, and enhancing credibility.
This GAAP takes the viewer through the differences between Indian GAAP and IFRS under to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
AUDIT ASSIGNMENT- M.COM PART II – SEMESTER IV, AUDIT REPORT, CARO 2015, AUDIT REPORT OF JINDAL STEEL & POWER LIMITED, SA 230 AUDIT DOCUMENTATION (REVISED), SA 500: AUDIT EVIDENCE.
FiZy Bhd experienced significant losses in recent years and proposed a capital rearrangement scheme to ensure the company's survival. The scheme involved reducing ordinary share values, exchanging preference shares for new preference and ordinary shares, issuing shares to settle debt with debenture holders and directors, selling investments, paying creditors, writing off losses and revaluing assets.
The document discusses various methods of company reconstruction including internal and external reorganization. Internal reorganization involves altering a company's capital structure through actions like changing authorized capital, reducing paid up capital, issuing bonus shares, or redeeming preference shares. External reorganization involves arrangements with outsiders such as disposing of assets/liabilities, debt restructuring schemes, business combinations, or devising a scheme to avoid liquidation. Specific examples and journal entries are provided to illustrate reduction of paid up capital through cancellation of losses or uncalled capital. The overall goal of reconstruction is to help distressed companies adapt, restructure finances, and potentially avoid liquidation.
The document discusses various types of tax assessments in Bangladesh, including:
1) Provisional assessment allows preliminary assessment based on filed returns while regular assessment follows.
2) Assessment based on correct returns is made within 30 days of filing without requiring further evidence.
3) Universal self-assessment deems the tax paid upon filing a complete return as the final assessment for the year.
4) There are also specialized assessments for situations like businesses discontinuing, persons leaving the country, and income escaping assessment.
The document discusses how Schedule III of the Companies Act 2013 provides increased transparency and easier comparison of financial statements for general investors. It analyzes and compares the balance sheets and profit/loss statements of Grasim Industries and Century Textiles using various financial ratios like P/E ratio, profitability ratios, and liquidity/solvency ratios. The analysis finds that while Grasim Industries has stronger profitability, Century Textiles has higher debt levels. Overall, Schedule III and analysis of financial statements through ratios helps investors evaluate companies.
This document does not contain a summary as it is a collection of fragmented text and does not convey complete ideas or information. The document includes discussions of auditor independence, contingent fees, threats to objectivity, and other audit-related topics but does not integrate these ideas into coherent paragraphs or provide an overall summary.
This presentation takes one through the basic mistakes often made while performing the internal audit function and calls for introspection of the internal audit function on a timely basis. It also defines the manner in which an internal audit function is to be approached.
- Financial statements include the balance sheet, income statement, cash flow statement, and notes. They provide information on a company's financial position and performance.
- The balance sheet presents a snapshot of a company's assets, liabilities, and equity on a given date. It provides information on a company's worth and financial position.
- The income statement is prepared to determine the profit or loss of a company over a period of time. It shows operating performance.
- Managerial remuneration is calculated as a percentage of company profits and has limits set by the Companies Act based on the number of managing directors and effective capital. Certain items are excluded from profits in calculating remuneration.
Companies Amendment Act,2014 & Important Provisions Eswaramoorthy P
The document summarizes key provisions from the Companies (Amendment) Bill, 2014 relating to amendments in the Companies Act, 2013. Some of the key changes include:
1. Omitting the requirement for minimum paid up share capital and making common seal optional to ease doing business.
2. Prescribing specific punishments for deposits accepted under the new Act which was inadvertently left out previously.
3. Prohibiting public inspection of board resolutions filed with the Registrar of Companies to meet corporate demands.
4. Including provisions for writing off past losses/depreciation before declaring dividends and rectifying requirements for transferring shares for unclaimed dividends.
The document provides
Knowledge level icab class lectures
Knowledge level icab class lectures
Knowledge level icab class lectures
Knowledge level icab class lectures
Knowledge level icab class lectures
Tutorial 6 -_company_reconstruction_answer (1)kim rae KI
This document provides an example solution to a company reconstruction tutorial question. It includes journal entries to record various transactions as part of the reconstruction, including a capital reduction, debt for equity swap, asset sale, and share conversions. It also presents the post-reconstruction statement of financial position, showing the company's assets, liabilities and shareholders' equity after implementing the reconstruction plan.
Mayur Jain is a Chartered Accountant working as an Assurance Executive at S.R. Batliboi & Co., LLP (Ernst & Young) since 2016. He has experience auditing several automotive ancillary companies. Some of the clients he has worked with include Lumax Auto Technologies, Hitachi Chemical India, Minda Furukawa Electric, and Nissin Brake India. For these audits, he has tested compliance with Indian GAAP, audited various areas of financial statements, and certified internal control over financial reporting. He also has experience with transfer pricing certification and working independently with clients like Japan Steel Works India. Prior to this, he completed his articleship and gained experience
The presentation provided an overview of the internal audit department's organization, mission, and 2009/10 audit plan for the audit committee. It discussed the department's responsibilities in providing independent assurance and consulting services. It also outlined the audit approach, including risk-based planning and a rating system for audit reports. Quality assurance processes were reviewed, including onboarding, training, performance reviews, and internal/external reviews. The benefits of internal audit for ensuring adherence to policies and ongoing risk management were also highlighted.
This document provides guidance on effective speeches and presentations. It discusses characteristics of good speeches such as clarity, appropriate length, being informative and interesting while matching the audience. It also covers preparing and delivering speeches, types of presentations like monologues and sales pitches, and factors that affect presentations such as audience analysis, environment, appearance, visuals, structure, and use of supporting materials.
The document discusses how to prepare for an audit by taking several steps: (1) be prepared by documenting all systems, software, licenses, projects and activities; (2) show control over the IT environment by tracking approved uses; (3) create formal procedures for security, backups, and disaster recovery; (4) ensure strong security practices around passwords and access; and (5) test backups and disaster recovery plans to ensure recoverability. Taking these steps will make the audit process smoother and leave a good impression.
Presentation on The Factors Affecting Auditor Independence of an External Aud...Mahfuza Mili
The document provides percentages for 5 categories related to potential biases in decision making. The categories are Self Interest at 31%, Self Review at 10%, Advocacy at 20%, Familiarity at 24%, and Intimidation at 15%.
This document provides an overview of the audit process from start to finish. It discusses prospecting for new clients, writing proposals, accepting engagements, planning the audit which includes assessing risks, executing audit procedures, and reporting on the results. Planning involves developing an audit strategy, establishing materiality, understanding the client's business and risks. Execution includes tests of controls, substantive procedures, and evaluating audit evidence. Reporting covers forming an opinion, communicating with management, and documenting the audit findings. The document also covers audit definitions, evidence, documentation standards, and how materiality and risk affect the audit.
The document provides an introduction and definitions of auditing. It discusses that auditing originated from the Latin word "audire" meaning to hear, as impartial judges would hear accounts. Auditing involves examining accounting books, documents, and evidence to determine the accuracy of financial statements and report on the balance sheet, profit/loss, and financial position. The document then provides definitions of auditing from various authors, including that it involves a systematic examination of books and records to verify financial operations and results. It discusses the scope and objectives of auditing, including legal compliance, evaluating accounting systems and controls, obtaining reasonable assurance of reliable information, and comparing records to financial statements.
The document summarizes key aspects of auditors and the audit process under the Companies Act 2013 in India. It outlines eligibility requirements for auditors, the appointment and removal process, auditor rotation rules, duties and powers of auditors, and penalties for non-compliance. Some highlights include that only chartered accountants can serve as individual auditors or partners in audit firms. Auditors are appointed by shareholders but require approval from the audit committee and board of directors. They must be independent and cannot provide non-audit services to the company.
This document discusses auditing principles and goals. It defines auditing as an independent examination of an organization's financial and non-financial transactions to express an opinion on their validity and accuracy. An auditor is the person who performs this examination and issues an audit report. Audits can be classified based on their method (such as management, system, or transaction audits) or nature (internal, external, statutory, or non-statutory). The goals of an auditor include expressing an opinion in a report, reviewing management information, ensuring compliance with procedures, investigating aspects of business as directed, and safeguarding assets. The scope of auditing for this company covers all operational areas and any assignments from management.
This slide presentation has been prepared by the IAASB’s Auditor Reporting Implementation Working Group to assist IAASB members, national standard setters, auditors and others promote awareness of the new and revised Auditor Reporting standards within their respective jurisdictions.
This chapter discusses business organizations, stakeholders, and external factors that affect businesses. It covers the purpose and types of organizations, including commercial, not-for-profit, public sector, NGOs, and cooperatives. Stakeholders are defined as those with an interest in the organization, and are mapped based on their power and interest. Political and legal factors from global, national, and government levels influence organizations through laws, regulations, taxation, and economic policies.
The document provides an introduction and overview of auditing. It defines auditing as examining accounting records to establish if they accurately reflect transactions. The key objectives of auditing are reporting, detecting and preventing frauds and errors. The specific objectives can depend on whether it is an internal audit or audit for other purposes like obtaining a bank loan. Auditing aims to verify that accounting policies are followed and financial statements present a true and fair view.
This document provides an overview of internal quality auditing techniques and common ISO 9001 requirements. It discusses using a process approach and PDCA cycle in audits. Interview skills like questioning techniques and taking notes are covered. Creating checklists and potential issues with "cheat sheets" are also summarized. The document reviews writing audit reports and addressing nonconformities. It identifies some of the toughest ISO 9001 clauses to audit and the most common nonconformities found in internal and registrar audits.
The document discusses principles of cooking, including how heat is transferred through conduction, convection and radiation. It explains how heat affects foods by causing proteins to coagulate, starches to gelatinize, sugars to caramelize, water to evaporate, and fats to melt. Finally, it outlines various cooking methods such as dry heat, moist heat, and combination methods.
The document discusses the audit process in four phases - planning, execution, reporting, and compliance and substantive procedures. It covers the basic principles of auditing like integrity, objectivity, independence. It also discusses audit risk, documentation, auditor's report and qualifications in reports.
The document discusses the new auditor's report requirements that will take effect for audits ending on or after December 15, 2016. Key changes include adding a new section to communicate key audit matters, revising descriptions of management and auditor responsibilities related to going concern, and enhancing descriptions of the audit performed and auditor responsibilities. The new requirements are aimed at making auditor's reports more informative and relevant to financial statement users. The document provides an overview of the new requirements and compares the format of reports under the revised standards versus the current format. An illustrative example of the new auditor's report is also included.
The external auditor's report provides an opinion on a company's financial statements and whether they comply with GAAP and present a true and fair view. The auditor establishes if the balance sheet, profit/loss accounts agree with books and comply with accounting standards. The auditor's report is addressed to board members and includes the date, type of audit (clean or qualified), and name of the auditing firm. Large auditing firms that provide these reports globally include PricewaterhouseCoopers, Deloitte, Ernst & Young, and KPMG.
The document provides an overview of the tools and techniques used in beginning auditing. It discusses internal auditing today, including the definition and roles of internal auditors. It covers the audit model stages of planning, performing, communicating and monitoring. Specific topics within these stages are also outlined, such as audit planning, interviewing, process documentation, walkthroughs, and developing audit programs. Emerging tools that can automate parts of the audit process are also mentioned. The document aims to introduce auditors to the key components and best practices for conducting an audit.
This document discusses key aspects of audit reports, including:
- The auditor's standard report provides an opinion on whether the financial statements are presented fairly and in accordance with GAAP.
- Audit reports typically include opinions on the financial statements themselves (balance sheet, income statement, etc.) and the related disclosures.
- Modifications to the standard report may be needed if certain conditions are present, such as material departures from GAAP or scope limitations.
- The auditor's report for public clients follows specific requirements regarding titles, addresses, references to auditing standards, and inclusion of opinions on internal control over financial reporting.
- The opinion paragraph states the auditor's opinion on whether the financial statements
The stages of an external audit are:
1. Audit acceptance which involves agreeing terms of reference, addressing legal and ethical considerations, and preparing an engagement letter.
2. Audit planning and control which involves developing an overall strategy, establishing objectives and scope, and planning to reduce audit risk.
3. Performing the audit which involves obtaining evidence through tests of controls and substantive procedures, evaluating misstatements, and forming an opinion.
Planning: Auditors gain insights into an organization and sector, pinpoint major areas of audit risk, and create an audit strategy to deal with these risks.
Internal controls are checked by the independent auditor in the organization's financial reporting. Controls over the approval, recording, and communication of financial transactions fall under this category.
Substantive Procedures: In order to acquire data pertaining to disclosures made in the audited financial statements, the auditor does tests on transactions and balance details.
Evaluation and Reporting:To establish whether the accounts receivable are free of major misstatements, auditors analyze audit evidence. They publish audit reports which include the results of their financial statements.
The decision of the auditor may be disqualifying (clear), qualified (with limitations), favorable (the report fails to accurately reflect the financial status), or disclaimer (the auditor is not authorized to make an opinion).
The document discusses the purpose and process of auditing. It defines an audit as the independent examination of a company's financial statements to determine if they accurately represent the company's financial position. The summary includes:
1. An audit is conducted to establish the reliability of a company's financial statements and ensure they provide a true and fair view of the company's finances.
2. An auditor determines the scope of the audit based on statutory requirements, proper planning, and obtaining reasonable assurance of the statements' accuracy.
3. The goals of an audit are to express an opinion on if the financial statements fairly represent the company's financial performance and position.
Auditing involves systematically obtaining and evaluating evidence regarding financial statements to determine how well they correspond to established criteria. Auditors are accountants who provide assurance by evaluating financial reports and issuing audit reports. There are different types of audits including financial, compliance, and internal audits. Auditors must comply with auditing standards and issue either unqualified opinions or modified opinions depending on if the financial statements are fairly presented. The objective is for auditors to form an opinion on whether financial statements are prepared according to the financial reporting framework.
The document provides an overview of auditing concepts including the scope and objectives of an audit, financial statement assertions, audit evidence, materiality, audit risk, audit opinions, and standards. It discusses key concepts such as the purpose of an audit being to obtain reasonable assurance about whether financial statements are free of material misstatement, and defines the different types of audit opinions that may be issued. The document also outlines the general principles of an audit, including complying with ethical standards and audit standards, and maintaining an attitude of professional skepticism.
The audit report communicates the auditor's opinion on the financial statements and sets out requirements for its content and format. The standard audit report includes basic elements like the title, addressee, management and auditor responsibilities, scope of the audit, and opinion. There are two main types of reports - unqualified and qualified. An unqualified report means the financials fairly represent the entity. A qualified report is issued if problems cannot be resolved with management.
This document provides an overview of key concepts related to auditing, including:
- The objectives of an audit are to obtain reasonable assurance about whether financial statements are free from material misstatement and to report on the financial statements.
- An auditor must be independent, consider materiality, and determine if financial statements present a true and fair view.
- Planning an audit involves assessing risks, developing an audit strategy and plan, and determining appropriate audit procedures.
- Internal controls are evaluated to determine if they are properly designed and operating effectively.
This document outlines professional standards that CPAs must follow when conducting audits and attestation engagements. It discusses the types of practice standards that govern work for different entities. Generally Accepted Auditing Standards (GAAS) are described in detail, including the general standards, standards of fieldwork, evidence considerations, and reporting standards. The document also discusses attestation standards, quality control standards for CPA firms, and the role of the Public Company Accounting Oversight Board in standard-setting and oversight of audits of public companies.
The document summarizes key changes to auditor reporting standards in India, including:
1) A new section on Key Audit Matters which communicates matters of most significance in the audit.
2) Enhanced descriptions of management and auditor responsibilities relating to going concern assessments and disclosures.
3) Expanded descriptions of the auditor's responsibilities, including clarifying the concept of a risk-based audit and specific matters like fraud and internal controls.
The document provides an introduction to financial statements and auditing. It discusses the purpose of financial statements, which is to provide useful information to users for economic decision making. It outlines the main users of financial statements and their interests. It also explains the need for auditing. Auditing verifies that financial statements are true and fair, and complies with reporting standards. It ensures the principal, or shareholders, have reliable information from the directors about the company's financial position and performance.
Accounting involves creating financial statements and other information for management decision making, while auditing enhances the credibility of financial statements through an independent examination and evaluation of accounting records to form an opinion. A key difference is that auditors must have accounting knowledge and expertise to analyze audit evidence and accumulate audit findings.
Role of Financial Statements
Auditors Report
Management Discussion and Analysis
Balance Sheet
Statement of Profit and Loss
Cash Flow statement
Accounting Polices
How to define Assets , Liabilities , Investments , Revenues , Expenses , Taxes, Cash Flow statements
Financial accounting is a specific branch of accounting involving a process of recording, summarizing, and reporting the myriad of transactions resulting from business operations over a period of time.
1. The document discusses various types of audits including cost audit, tax audit, and management audit. It outlines the objectives and processes involved in each type.
2. A cost audit ensures accurate profit figures by verifying stock valuation and work-in-progress. A tax audit ensures proper maintenance and presentation of accounts for tax authorities.
3. A management audit appraises managerial performance, plans, controls, and functions to evaluate if objectives are met effectively and efficiently. It provides recommendations to improve organizational processes.
The document discusses the different types of audits conducted by the Commission on Audit of the Philippines - financial, compliance, and performance audits. It explains that a financial audit aims to determine if financial statements are properly prepared, while a compliance audit checks for compliance with laws and regulations and a performance audit assesses economy, efficiency and effectiveness.
The document also summarizes the different types of audit opinions that can be issued for a financial audit. An unmodified or unqualified opinion means the financial statements are properly prepared, while a modified opinion (qualified, adverse, or disclaimer) means there are material misstatements or the auditor could not obtain sufficient evidence.
Finally, the document emphasizes that an audit opinion only relates to the financial
2. Chapter Objectives:
• Recognize the role independent auditors play in achieving effective corporate
governance and reliable financial reports.
• Understand the history of auditing, the traditional roles of auditors, and regulations
recently placed on them.
• Address the expectation gap regarding what auditors can provide in the way of
reasonable assurance and the expectations of investors for a higher level of
assurance.
• Identify the roles and responsibilities of the PCAOB, and discuss the auditing
standards published by the PCAOB.
• Demonstrate the importance of auditor independence both in fact and in appearance.
• Discuss an integrated audit of both financial statements and ICFR.
• Address the issue of a liability cap for independent auditors, and understand the
rationale on both sides of the issue.
VIDEO ( VIDEO)
3. Key Terms
The Accountancy Investigation & Discipline Board (AIDB)
Audit quality
Audit risk
Audit strategy
Auditor independence
Control risk
Detection risk
Expectation gap
Inherent risk
Integrated audit approach
Internal Revenue Service (IRS)
International Standards on Auditing (ISAs)
PCAOB-US
Professional Ethics Executive
Committee (PEEC)
Standing Advisory Group (SAG)
Statements on Auditing Standards
5. External Auditor Responsibility
Current auditing standards require that independent auditors
provide reasonable assurance that the financial statements
are free from material misstatements, whether caused by
error or fraud, to render an unqualified opinion on the financial
statements.
External auditors are not and should not be expected to
provide absolute assurance regarding reliability of financial
statements, but the public expectations concerning external
auditors performance are high.
Users of audited financial statements generally expect
external auditors to detect financial statement fraud and
employees’ illegal acts and fraud, which affects the integrity
of financial reports. External auditors, however, are more
concerned with material misstatements in the audited
financial statements.
6. Auditor Competency
1. Professional competencies. To audit public companies,
auditors should register with the PCAOB and meet all
registration and inspection requirements.
2. Technical competencies. Auditors should be knowledgeable
in professional standards, rules, laws and regulations, and
understand their clients’ industry and business, corporate
governance, financial reporting process, and internal
controls.
3. Process competencies. Auditor’s ability to choose
appropriate evidence-gathering procedures (tests of
controls, substantive tests) and execute auditing
procedures
4. Reporting competencies. Reporting competencies refer to
the auditors’ ability and willingness to discover and report
material misstatements.
7. Reports Accompanying
Financial Statements
• Report on financial statements and related disclosures
(prepared by auditor)
Are financial statements and disclosures according to GAAP?
• Report on internal control over financial reporting
(prepared by management)
Has company maintained effective internal control over financial
reporting?
• Report on internal control over financial reporting
(prepared by auditor)
Is management’s assessment of its internal control appropriate?
Has company maintained effective internal control over financial
reporting?
8. The Purpose of the Audit Report
• Definition of auditing: “... communicating results to
interested users.”
• Indicate whether the FS are in accordance with GAAP
Provide indication of what the FS would be like if GAAP were
followed
Provide any company-omitted disclosures
• Indicate any unusual aspects of the audit examination
Scope limitations
Division of responsibility
• Indicate any unusual matters related to the company
Going concern uncertainty
Consistency
Emphasize a matter
9. Four Categories of
Audit Reports
• Standard unqualified (clean opinion)
• Unqualified with explanatory paragraph or
modified wording
• Qualified
• Adverse or disclaimer
10. Definitions: Webster’s New
Unabridged Dictionary
• Qualified:
Having met conditions or requirements set
Limited, modified
• Unqualified:
Not having the usual or requisite talents,
abilities, or accomplishments
Not modified, limited, or restricted by conditions
or exceptions
11. Types of Audit Reports
Type of Report Interpretation
Unqualified Financial statements taken as a whole present fairly
Opinion the financial position, results of operations, and cash
flows in conformity with generally accepted
accounting principles (GAAP).
Qualified Opinion ―Except for‖ the effects of a particular matter, the
financial statements present fairly the financial
position, results of operations, and cash flows in
conformity with GAAP.
Adverse Opinion Financial statements do not present fairly the financial
position, results of operations, and cash flows in
conformity with GAAP.
Disclaimer of Auditor does not express an opinion on the financial
Opinion position, results of operations, or cash flows.
13. Standard Unqualified Report
The five necessary conditions have been met:
1. All four required statements are included.
2. The three general standards have been
followed in all respects on the engagement.
3. Sufficient evidence has been accumulated
and the auditor has conducted the
engagement in a manner that enables the
conclusion that the three standards of field
work have been met.
14. Standard Unqualified Report
4. The financial statements are presented in
accordance with GAAP (including adequate
disclosures.
5. There are no circumstances requiring the
addition of an explanatory paragraph or
modification of the report wording.
15. Standard Unqualified Audit Report
(Nonlisted Companies)
Title Report of Independent Auditor
Address To the Board of Directors and stockholders of Any
to client company
Audit AuditWe have audited the accompanying balance
notice notice of Any company as of December 31, 1990
sheets
and 1989, and the related statements of income,
Identify Management
retained earnings, and cash flows for the year
the responsibility
then ended. These financial statements are the
financial responsibility of the company’s management. Our
statement responsibility is to express an opinion on these Auditor
s financial statements based on our audits. responsibility
continued
16. We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit includes
Descriptio examining, on a test basis, evidence supporting
n of the the amounts and disclosures in the financial
audit statements. An audit also includes assessing the
accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement
No special presentation. We believe that our audit provides a Opinion on
In our opinion, the financial statements
mention of reasonableabove for our opinion. all material
referred to basis present fairly, in financial
adequate statement
respects, the financial position of Any company as
disclosure s
of December 31, 1990 and 1989, and the results
or
of its operations and its cash flows for the years Refer to
consistenc
then ended in conformity with generally accepted GAAP
y
accounting principles.
Signature ___________________________________,
CPA
Date February 28, 1991
17. Audit Failures and Audit Quality
Following is the list of the initiatives that have been
suggested to improve audit quality, as well as transparency.
1. Publication of audit engagement letters
2. Shareholders’ rights to question auditors
3. Publication of auditor resignation statements
4. Lead audit partner’s signature on audit reports
5. Active audit committee participation in evaluating the
scope and results of the integrated audit of both ICFR and
financial statements
6. Mandatory rotation of the audit firm every seven to twelve
years in the context of the quality of audit work performed
by the firm and the audit efficacy
7. Mandatory shareholder vote on the ratification of the
independent auditor each year
18. Public Company Accounting
Oversight Board
The PCAOB created by SOX to regulate the auditing
profession.
The PCAOB’s primary functions are to:
1. Register public accounting firms that audit public
companies.
2. Inspect the registered public accounting firms on a regular
basis.
3. Establish auditing, attestation, ethics, quality control, and
independence standards.
4. Conduct investigations and disciplinary proceedings.
19. PCAOB Auditing Standards
The PCAOB has issued five auditing standards as of
September 2007:
1. PCAOB Auditing Standard No. 1 (audit is conducted in
accordance with auditing standards of PCAOBUS, the city and
state has to be disclosed)
2. PCAOB Auditing Standards No. 2 and 5 (New PCAOB AS No.
5 superseded AS No. 2 and requires the independent audit to
opine only on the effectiveness of ICFR, not the management
processes and assessments concerning ICFR)
3. PCAOB Auditing Standard No. 3 (auditors are required to
maintain the audit documentation in a sufficient manner and
keep the records for at least seven years)
4. PCAOB Auditing Standard No. 4 (voluntary engagement for
the auditor’s report on the company’s elimination of previously
reported material weaknesses in its ICFR)
20. Roles and Responsibilities—Internal Control over
Financial Reporting
• Management: Designs and implements the system of
internal control over financial reporting; evaluates the
effectiveness of the company’s internal control over financial
reporting and provides a public report on that assessment;
prepares the financial statements.
• Audit Committee: Has responsibility for oversight of the
company’s financial reporting process.
• Independent Auditor: Performs an audit of internal control
over financial reporting and issues a report on
management’s assessment of internal control over financial
reporting and on the effectiveness of internal control over
financial reporting; also performs an audit of the company’s
financial statements.
20
21. What Management’s Report
Will Include
Under the SEC rules, management’s report on internal control over
financial reporting should include the following information:
• Statement of management’s responsibility for establishing and
maintaining adequate internal control over financial reporting.
• Statement identifying the framework used by management to evaluate
the effectiveness of internal control over financial reporting.
• Management’s assessment of the effectiveness of the company’s
internal control over financial reporting as of the end of the company’s
most recent fiscal year, including an explicit statement as to whether that
control is effective and disclosing any material weakness identified by
management in that control.
• Statement that the registered public accounting firm that audited the
financial statements included in the annual report has issued an
attestation report on management’s internal control assessment.
21
22. PCAOB Auditing Standard No. 2:
An Audit of Internal Control over Financial Reporting Performed in Conjunction with
an Audit of Financial Statements
1. AS No. 2 required three integrated reports on:
a. Financial statements audited by registered public accounting
firms.
b. Management’s assessment of the effectiveness of internal
control over financial reporting (Section 404).
c. The effectiveness of internal control over financial reporting
over financial reporting based on the auditor’s attestation of
internal control.
2. AS No. 2 was effective beginning June 17, 2004.
22
23. The Independent Auditor’s Opinion
The content of the auditor’s report is prescribed by the
PCAOB standard. The most common opinions on the
effectiveness of internal control over financial reporting will
be:
• Unqualified Opinion. An opinion that internal control over
financial reporting is effective: no material weaknesses in
internal control over financial reporting exist as of the fiscal
year-end assessment date.
• Adverse Opinion. An opinion that internal control over
financial reporting is not effective: one or more material
weaknesses exist as of the fiscal year-end assessment
date.
• Disclaimer of Opinion. A report stating that restrictions on
the scope of the auditor’s work prevent the auditor from
expressing an opinion on the company’s internal control
over financial reporting.
23
24. Report of Independent Registered Public
Accounting Firm
1. Introductory 2. Scope 3. Definition
Paragraph Paragraph Paragraph
6. Inherent 5. Explanatory 4. Opinion
Limitations Paragraph* Paragraph
Paragraph
7. Signature 8. City and 9. Date
State or
County
*The explanatory paragraph is required only when the auditor’s opinion is other than unqualified and may also be placed after the opinion paragraph
when the auditor issues two separate reports on the audit of financial statements and internal controls, thus making reference to opinion on the
financial statement audit in the report on the internal control audit.
24
25. 25
Source: Release No. 2004-001, pages 116−137, Appendix A—Illustrative Reports, available at pcaobus.org.
26. Source: Release No. 2004-001, pages 116−137, Appendix A—Illustrative Reports, available at pcaobus.org. 26
27. Source: Release No. 2004-001, pages 116−137, Appendix A—Illustrative Reports, available at pcaobus.org. 27
28. PCAOB Auditors Independence
The new rules restrict public accounting firms in
performing a variety of tax services to their audit clients.
The new rules are intended to prevent the selling of
abusive tax shelters.
29. Audit Committee Oversight of
External Auditors
The extended oversight responsibilities for the audit
committee are:
1. Appointment, compensation, and retention of registered
public accounting firms
2. Preapproval of audit services and permissible nonaudit
services
3. Review of the independent auditor’s plan for an integrated
audit of both ICFR and annual financial statements
4. Review and discussion of financial statements audited or
reviewed by the independent auditor
5. Monitoring the auditor’s independence
6. Auditor rotation requirement
30. Audit Committee Oversight of
External Auditors
The number of companies that change auditors, and the
number of auditors changed
31. Independent Auditors
Communications with the Audit
Committee
Communications from the committee to the Communications from the independent
independent auditor: auditor to the audit committee:
1. Appointment and retention approval of the 1. Seeking committee preapproval of all audit and
independent auditor nonaudit services in a timely manner
2. Formal approval of audit and permissible nonaudit 2. The critical accounting policies and practices used by
services management in the preparation of financial statements
3. Formal approval of fees for both audit and nonaudit 3. All alternative treatments of financial information within
services with a keen focus on improving the quality of GAAP
audit and nonaudit services 4. Any accounting disagreements between the
4. Any concerns or risks threatening management’s independent auditor and the company’s management
reputation and integrity, etc. 5. Any material, written communications between the
5. Allegations of financial statement fraud independent auditor and the company’s management
throughout the course of the audit
6. Significant deficiencies and material weaknesses of
ICFR
7. The audit report on annual financial statements
8. The review report on quarterly financial statements
9. The audit report on management’s assessment of the
effectiveness of ICFR
10. The audit report on the effectiveness of ICFR
11. Financial risks associated with financial reports
33. Consolidation and Competition
in Public Accounting Firms
SEC rules require public companies that change their public
accounting firms to file a Form 8-K, Item 4.01, to disclose
changes within four days, whereas auditors are required to
provide standard letters within ten days stating whether they
agree with the company’s disclosure without specifying any
reasons.
34. Integrated Audit Approach
Management assessment on
the effectiveness of ICFR
Effectiveness of both design
and operation of ICFR based
on control criteria
Fair presentation of financial
statements in conformity with
GAAP
35. Audit Strategy
Audit Strategy:
1. No limited tests of controls
2. No use of cycle rotation in tests of controls
3. Dual testing of controls and substantive audit procedures
Auditors should focus on prevention, detection, and correction
of controls at both the company level and the transaction
level. Auditors should perform tests of controls as a basis for
forming an opinion on the effectiveness of ICFR. Auditors
should also perform substantive tests as a basis for
expressing an opinion on the fair presentation of financial
statements, regardless of the identified significant
deficiencies and material weaknesses in internal controls.
37. Brief History Fraud Investigation
• 1900s -- Fraud detection was a primary
objective of the audit
• 1940s -- Detection of fraud considered to be
a ―responsibility not assumed‖
• 1960s -- Auditor acknowledged responsibility
for detecting fraud that would normally be
uncovered by an examination performed in
accordance with GAAS.
• 1980s -- Auditor had responsibility to search
for fraud that may have a material affect on
the financial statements.
• 1997 -- SAS No. 82; 2002 – SAS No. 99
37
38. Types of Fraud Financial Statement Fraud
Misrepresentation of material
facts
Misappropriation of assets
Concealment of material
facts
Management
Fraud
Illegal Acts
Bribery
Conflict of Interest
Embezzlement of money or
FRAUD property
Breach of fiduciary duty
Theft of trade secrets of
Employee intellectual property
Fraud
Illegal acts
39. Why People Commit Fraud
Studies show that employees are likely to
commit fraud when four conditions exist:
– PRESSING FINANCIAL NEED
– OPPORTUNITY
– REASONABLE JUSTIFICATION
– LACK OF MORAL PRINCIPLES
39
41. Profile of Fraud Perpetrators
The fraud perpetrator is more likely to be an ordinary member of the
community: intelligent, respected, never suspected of dishonesty,
NOT YOUR TYPICAL CRIMINAL TYPE.
MORE LIKELY TO BE: LESS LIKELY TO BE:
• A woman • Divorced
• Married • Alcoholic
• Church member • Tattooed
• Older
• Heavier
• Have children
• Have a higher education
• Never been arrested
• Have high self-esteem
• High achiever
41
42. Financial Statement Fraud
• Definition – Deliberate misstatements or omissions
of amounts or disclosures of financial statements to
deceive financial statement users, particularly
investors and creditors
• Financial statement fraud has become a daily thing.
Press reports challenge the corporate responsibility
and integrity of major companies such as Lucent,
Xerox, Rite-Aid, Waste Management,
Microstrategy, KnowledgeWare, Sunbeam,
Cendent, and ZZZ Best, Enron, WorldCom, Qwest,
Madoff, Satyam, Stanford Financial, and Parmalat.
42
43. High-Profile Financial statement
Fraud
Basis of the Fraud Older Example Year Recent Example Year
Fictitious revenue, ZZZZ Best Enron
documentation forgery and 1987 2001
theft of corporate assets
Personal use of assets, false Phar-Mor 1992 Adelphia 2002
documentation and financial
statement fraud
Capitalizing expenses, among Waste 1997 WorldCom 2002
other issues Management
Abuse of accounting Savings and Loan 1982 Stock Options
standards Crisis Backdating 2006
44. Symptoms of Financial
Statement Fraud
• Continuous Deterioration of Quality and
Quantity of Earnings
• Inadequacy of Cash Flow
• Overstatement of Inventories
• Overly Aggressive Accounting
• Management ―Short-termism‖
• Improper Revenue Recognition
• Overstatement of Assets
45. Elements of Fraud
• A false representation of a material nature
• Knowledge that the representation is false or
reckless disregard for the truth (Scienter)
• Reliance on the false representation by the
victim
• Financial damages are incurred (to the
benefit of the perpetrator).
• The act was intentional.
46. Auditor and Investigator
Responsibilities
• External Auditors (CPAs)
SAS 99: Consideration of Fraud in a Financial Statement Audit
– Design audit to provide reasonable assurance of detecting fraud that could have
a material effect on the financial statements.
– Perform fraud-related procedures
SAS 54: Illegal Acts
– Focused primarily is on direct-effect illegal acts
SAS 61: Communication with Audit Committees
• Internal Auditors (CIAs)
SIAS 3: Deterrence, Detection, Investigation, and Reporting of Fraud
• Governmental Auditors
Focus on laws and regulations (compliance), design audit to detect abuse
and illegal acts, report to the appropriate authority
• Certified Fraud Examiners (CFEs)
Assignments begin with predication (probable cause)
46
47. Auditor’s Responsibility for
Detecting Fraud
• GAAS makes NO DISTINCTION
between the auditor’s responsibilities for
searching for errors or for fraud
• Per SAS No. 99, auditors must
specifically assess the risk of material
misstatement due to fraud
47
48. Assessing the Risk of Fraud
• Pressure or incentive to commit the fraud
Direct financial gain, such as misappropriation
of assets or retaining job
Indirect financial gain, such as increase in
stock price
• Perceived opportunity to commit the fraud
Can fraud be perpetrated without detection?
48
49. Misappropriation of Assets
Risk Factors
• Susceptibility of assets
to misappropriation
• Employee relationships
or pressures
• Deficiencies in internal
control
49
50. Red Flags
• Personal financial pressure
• Vices (drugs, alcohol or gambling)
• Extravagant lifestyles
• Real or imagined grievances against
company
• Related parties
• Increased stress
• Internal pressures
50
51. How Frauds Occurred
• Poor internal controls
• Management override of internal controls
• Collusion between employees and third
parties
• Collusion between employees or
management
• Lack of control over management
• Poor or nonexistent corporate ethics policy
51
52. Reasons Auditors Fail to Detect Fraud
• Over reliance on client representations
• Lack of awareness or failure to recognize
that an observed condition may indicate a
material fraud
• Lack of experience
• Personal relationships with clients
52
53. SAS No. 99
The Fraud Triangle
Rationalization
Incentives/ Opportunities
Pressures
53
54. The Fraud Triangle
• Incentives/Pressures
95 percent of all fraud cases involve either:
– Financial pressures
– Vice-related pressures, including drug or alcohol
addiction
– Expensive romantic relationships
– Need to maintain a particular lifestyle
– Medical problems
54
55. The Fraud Triangle
• Rationalization is the reconciliation
of what we are doing with what our
conscience tells us we should do.
• "I was only borrowing it;
I planned to return it after things
improved."
55
56. The Fraud Triangle
• Opportunity
Easiest to control of the three components
Most frequently achieved with internal
controls
– Segregation of duties
– Authorizations
– Independent checks
– Physical safeguards
– Adequate documents and records
56
58. Evaluate Control
Environment
Tests of Controls
Audit Inherent Risk X Control Risk X
= Detection Risk
Risk
Errors Errors Errors Analytical
Procedures
Misappropriation Misappropriation Misappropriation Tests of
of Assets of Assets of Assets Details
Financial Financial
Statement Statement
Financial
Fraud Fraud Forensic
Statement
Fraud Procedures
Evaluate
Management Evaluate Top
Controls Over
Integrity Management
Assets
Controls
R R
1 2
Incentive/ Opportunity
Pressure
Incentive/ Attitude/ Opportunity
Pressure Fraud Rationalization Fraud Risk
Risk Factors Fraud Risk Factors
Factors
58
59. Audit of Defined Benefit
Pensions
Employer-defined benefit pension reforms, as proposed by the
administration and introduced by both the House and the
Senate, would require plan sponsors to make minimum funding
contributions equal to the greater of:
(1)the contributions required under the plan’s funding standard
account estimated based on the plan’s actuarial accrued
liability,
(2)deficient reduction contributions calculated under current
liability rules.
These reforms would replace the current law’s “double-barrel”
system with a single measure of assets and liabilities and
required funding method.
60. Auditors’ Liability Limitation
Agreement
In February 2006, the Federal Financial Regulatory Agencies
issued an interagency advisory that raised concerns regarding
the negative impacts on the quality and reliability
of audits when financial institutions agree to limit their
independent auditors’ liability.
The advisory, while observing an increase in the types and
extent of provisions in financial institutions’ external audit
engagement letters that limit auditor liability, informs
financial institutions that they should not enter into an audit
engagement that includes unsafe and unsound limitation of
liability provisions relevant to an integrated audit of their
financial statements and ICFR.
62. Conclusion
• The audit function should be regarded as an external corporate
governance mechanism that serves to protect investors from
receiving incomplete, inaccurate, or misleading financial information
and thus adds value to the effectiveness of corporate governance.
• SOX drastically changed the characteristics of the accounting
profession by connecting the audit function to the corporate
governance structure by requiring that the audit committee be directly
responsible for not only hiring, compensating, and firing external
auditors, but also overseeing their work, monitoring their
independence, and avoiding potential conflicts of interest.
• In the auditing profession, the so-called expectation gap is referred
to as the difference between (1) what the investing public and other
users of audited financial statements believe the responsibilities of
auditors are, and (2) what auditors are willing to assume as
responsibilities according to their professional standards.
• New PCAOB AS No. 5 superseded AS No. 2 and requires the
independent audit to opine only on the effectiveness of ICFR, not the
management processes and assessments concerning ICFR.
63. Conclusion
• Sections 201 and 202 of SOX require that all audit and permissible
nonaudit services to be performed by the company’s independent
auditor be approved by the audit committee.
• Auditor independence is the backbone of the auditing profession,
affecting the auditor’s planning, evidence-gathering procedures,
findings, judgment, and credibility, and public trust in the auditor’s
opinion.
• Auditor independence is derived and guided by these three
principles: (1) independent auditors may not audit their own work, (2)
independent auditors may not function in the role of their client’s
management, and (3) independent auditors may not serve in an
advocacy role for their audit clients.
• Tests of controls must be broadened to include understanding of
ICFR and provide reasonable assurance about the effectiveness of
both the design and operation of internal controls.
• Any contractual provisions that limit the external auditor’s liability or
require waiving the right to a jury trial may have detrimental effects
on auditor impartiality, objectivity, and quality.