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Kyla Stafford at Montana accounting firm member Anderson ZurMuehlen & Co outlines SAS 99 and describes the steps auditors must take to address the risk of fraud.
Some key elements you should include in your documentation are as follows:
Documentation regarding the risk of material misstatement due to fraud should include the following:
• How and where the team believes the entity’s financial statement might be susceptible to fraud
• How management could perpetrate or conceal fraud
• How assets of the entity could be misappropriated
The discussion should also include a consideration of known internal and external factors affecting the entity that might:
• Create incentive/pressures for management and others to commit fraud
• Provide the opportunity for fraud to be perpetrated; and
• Indicate a culture or environment that enables management and others to rationalize committing fraud.
Making inquiries of management and others within the entity to obtain their views about the risks of fraud and how they are addressed.
This step involved asking management about a number of issues, including:
• Whether management has knowledge of fraud or suspected fraud
• Management’s understanding of the risk of fraud.
• Programs and controls the entity has established to help prevent, deter, or detect fraud (if they have none, these are a great idea for management letter comments)
• Whether and how management communicates to employees its views on business practices and ethical behavior
These same elements should be included in the inquiries of the audit committee and other personnel to corroborate management’s responses.
Responding to the results of the assessment
Once you have gathered this information, you must determine the impact it will have on how the audit is conducted, including
assignment of personnel and supervision, assessment of accounting principles used, and varying the predictability of auditing procedures, and changing the nature, timing and extent of audit procedures.
Remember to keep a questioning mind (aka professional skepticism)!
For more information
Please contact Kyla Stafford at Montana accounting firm Anderson ZurMuehlen
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