Fraud at the Engagement Level .

Expositor: Javier Becerra

Objectives
You will be able to:
• Describe what fraud is.
• Describe and apply the guidance for consideration of fraud
in a financial statement audit.
• Identify fraud risk factors and circumstances that indicate
the possibility of fraud.
• Modify audit procedures in response to the assessment of
fraud risk factors or circumstances that indicate the
possibility of fraud.
• Apply professional skepticism in interpreting results of audit
procedures performed on journal entries, management
estimates, and unusual transactions.
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Fraud triangle

INCENTIVE/PRESSURE

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Audit steps and fraud focus

• What procedures do we perform to identify fraud risk

factors?
• What procedures do we perform to respond to identified
fraud risk factors?
• What procedures do we perform to evaluate and
communicate the results of our testing?

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Audit steps and fraud focus (cont’d)

• Perform Preliminary Engagement Activities

• Perform Audit Planning

Understand:
• Entity and its Environment
• Internal Control
• Accounting Process

Gather fraud risk

factors

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Audit steps and fraud focus (cont’d)

Discuss and analyze Obtain specific

fraud risk factors information
among the audit team to identify fraud risks

Identify fraud risk factors

Preliminary analytical
review

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Audit steps and fraud focus (cont’d)

• Perform the Audit Plan

• Perform Tests of Operating

Effectiveness of Controls and
Evaluate Results
• Perform Substantive
Procedures and Evaluate
Results

Respond to fraud
risk factors

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Audit steps and fraud focus (cont’d)

Overall responses Evaluate controls

Respond to fraud
risk factors

Change in nature,
Address risk of
timing, and extent
management override
of audit procedures

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Fraud focus through the audit engagement

IDENTIFY FRAUD RESPOND TO FRAUD

RISK FACTORS RISK FACTORS

FRAUD

EVALUATE

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Key financial statement frauds

• Fictitious revenue schemes.

• Fraudulent timing differences schemes.
• Concealed liability and expense fraud schemes.
• Improper disclosure fraud schemes.
• Improper asset valuation fraud schemes.

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Management override

• Following procedures need to be performed by auditor:

– Review appropriateness of journal entries.
– Review accounting estimates for biases.
– Obtain understanding of business rationale of significant
transactions outside normal course of business.

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