RTI, Nagpur 1 Day 3- Session I  Role of audit in consideration of fraud.

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Presentation transcript:

RTI, Nagpur 1 Day 3- Session I  Role of audit in consideration of fraud

RTI, Nagpur 2 Session Overview  Respective roles of audit and management in prevention and detection of fraud  SAI India auditing standards and ASOSAI guidelines in audit of frauds

RTI, Nagpur 3 Learning objective  Participants will know the responsibility of auditor in fraud detection and will be able to apply the requisite field standards in audit planning, having regard to risk factors including fraud risk

RTI, Nagpur 4 Responsibility of management  Sound accounting policies and systems  Sound internal reporting procedures that include physical verification of cash & inventory  Sound system of internal control  Screening of personnel before induction  Sound protection policies in regard to computerized data  System for prompt compliance of auditors’ recommendations

RTI, Nagpur 5 Responsibility of audit  To make a vital difference through effective communication of audit findings and recommendations  To provide a reasonable assurance on integrity of financial statements

RTI, Nagpur 6 Auditing Standards- consideration of fraud  AAS 4 requires:  Auditors to adopt professional skepticism  Active engagement with team members regarding fraud risk  Evaluation of internal controls to address fraud risk  Circumstances indicative of risk of material mis-statement  Necessity of disclosure in case of significant fraud  Responsibility to inform, if required, law enforcement agencies

RTI, Nagpur 7 SAI India- Standards & ASOSAI guidelines  ASOSAI: “ while determining materiality levels, SAI should be more responsive to risk arising from fraud and corruption”  Basic Postulate-3.2-C&AG’s Auditing Standards  SAI India should comply with INTOSAI auditing standards in all matters deemed material  SAI India-Auditor to exercise own judgment, depending on circumstances, in determining procedures –Implies auditor will perform enhanced audit procedures in case of suspected fraud

RTI, Nagpur 8 Responsibility for disclosure  ASOSAI  Responsibility of audit to ensure that management has addressed risk of fraud and corruption  SAI India  Emphasises consistent application of accounting standards for expression of fair opinion on financial results of audited entity(4.6)  Advises Govt. on acceptable accounting standards for financial reporting & disclosure(4.5)

RTI, Nagpur 9 Responsibility for controls  ASOSAI  SAI to pro-actively report to mgt to improve control environment to minimize fraud and corruption  SAI India  Auditor is responsible for submitting proposals and recommendations to improve inadequate controls or to institute these.(4.7)

RTI, Nagpur 10 Responsibility for performance indicators  ASOSAI  Auditor to make mgt aware of need for reliable and valid performance indicators  SAI India  Emphasizes need for developing specific and measurable objectives and performance indicators.(4.10)

RTI, Nagpur 11 Field standards- Planning of audit Field standards- Planning of audit  Key factors for risk assessment(4.22)  Knowledge of business entity –Nature of business of the entity –Environment in which the business is functioning  Control environment –Management strengths in terms of quality of supervision and effectiveness –Allocation of tasks and responsibilities –Internal audit –IT environment

RTI, Nagpur 12 Field standards- Planning of audit (Contd.)  Accounting –Susceptibility to fraud –Accounting methods –Related party transactions –Unusual transactions

RTI, Nagpur 13 Field standards- Planning of audit (Contd.)  Internal controls –Segregation of duties –Authorization –Completeness & accounting of data –Safeguard procedures –Inadequate computer controls not cited to suppress evidence –System of internal audit

RTI, Nagpur 14 Field standards- Planning of audit (Contd.)  Information & tips from whistleblowers and public  Need to adopt professional skepticism in high risk areas

RTI, Nagpur 15 Circumstances indicative of irregularities requiring substantive testing  Missing documentation  Evidence of falsified documents  Unsatisfactory explanations  Unexplained items on reconciliation/suspense accounts  Evidence of disputes  Unduly lavish lifestyles by officers & employees  Evidence of weak internal controls  Unauthorized access to computerized data