ACCA AA Syllabus B. Planning And Risk Assessment - Fraud & Misstatement Effects - Notes 2 / 6
Prevention and detection of fraud is the responsibility of management. However, the risk of fraud is important to the auditor because it may lead to a material misstatement
In order to detect fraud, the auditor must maintain an attitude of professional scepticism - meaning to always be aware of the possibility of fraud, regardless of past experience of the client
Once an error (unintentional) or fraud (intentional) has been found by the auditor then the auditor needs to re-assess his original risk assessment of the audit
It will make the audit higher risk and hence increase the testing that needs to be done
Also it may well make the auditor question further the integrity of the management and the effectiveness of controls
This will impact the audit strategy in the following ways:
Testing may be focused on the areas in which fraud is suspected.
The auditor may choose not to rely on the representations of management if they are suspected of involvement in fraud.
Materiality may be reduced.
Evidence provided by the client may not be relied upon.
The auditor may have to generate more 3rd party evidence.