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From identifying and assessing the risk of material misstatement due to fraud to designing and performing audit procedures responsive to those risks, addressing the risk of fraud is challenging. Recent outreach by the AICPA Auditing Standards Board (ASB) aims to help auditors enhance their approach to addressing fraud risks.
The ASB interviewed more than two dozen professionals with forensic and fraud expertise about techniques auditors might want to consider when performing a financial statement audit in accordance with GAAS. Although most interviewees report some auditing experience, they are not primarily audit professionals. Almost all of them are currently working as professionals who provide forensic services or support audit teams in fraud-related matters.
Each interview typically lasted one hour and covered significant content. This article discusses some of the key takeaways from these interviews. Note that the suggestions in this article are not intended to expand the fraud-related requirements included in the professional standards.
The ASB conducted the interviews as part of its current project related to potential revisions to AU-C Section 240, Consideration of Fraud in a Financial Statement Audit, and the outreach reflects the ASB’s continuing focus on data-driven insights.
CURRENT GUIDANCE ON FRAUD
AU-C Section 240 describes requirements concerning fraud for auditors performing financial statement audits. Among these requirements are: (1) to maintain professional skepticism throughout the audit; (2) to discuss with key members of the engagement team matters such as how and where an entity’s financial statements might be susceptible to material misstatement due to fraud and how the auditor might respond to the susceptibility to fraud; and (3) to inquire of management regarding matters such as management’s assessment of the risk that the financial statements may be materially misstated due to fraud and their process for identifying, responding to, and monitoring the risks of fraud in the entity.
