SAS No. 122, AU 240, Consideration of Fraud in a Financial Statement Audit

Overview

When performing a financial statement audit, auditors have always been responsible for the detection of anything that would cause a material misstatement of the financial statements whether caused by error of fraud. However, in the past the audit profession focused on material misstatements due to errors and more or less ignored the possibility of misstatements due to fraud. Now, SAS No. 122, AU 240 requires significant documentation as to what the auditor did in order to determine if there any material risk of a misstatement of the financial statements. This presentation is an overview of what the auditor is to document in there working papers on every financial audit as to the procedures they performed in order to determine the risk of a material misstatement. If a material risk is discovered, they are then required to document what they did in order to determine if the financial statements were misstated.

Highlights

The importance of professional skepticism
The dangers of making assumptions
How to listen and understanding the answer to a question
Why it is important to leave all of your expectations at home
Anticipation and why it’s so dangerous
Determining materiality
The fraud triangle
Thinking about, given a set of circumstances, how you would steal
Management and the Tone At the Top

Prerequisites

None

Designed For

External and Internal Auditors

Objectives

Understand the concept of materiality, both quantitively and qualitatively
Develop and maintain professional skepticism throughout the audit
Examine supporting documentation with a questioning attitude
Discuss the danger of making assumptions
Assess the risk of familiarity related to anticipation when dealing with a repeat client
Relate what is real vs perception