Audit Standards Applicable to the Detection of Errors and Irregularities

Audit Standards - Complete Controller

At the time of performing an audit, the auditor must rely on international auditing standards (ISA). In this case, he must apply Nia 240, which is titled fraud and error. The purpose of this Standard is to establish standards and provide guidance on the auditor’s responsibility to consider fraud and error in an audit of financial statements.

The Standard emphasizes that the auditor should consider the risk of the existence of significant errors and fraud in the financial statements when planning the audit, execute the necessary procedures for that purpose and submit the respective report.

The Standard distinguishes fraud from errors and includes its characteristics. It also highlights the primary responsibility of the entity’s management to prevent and detect frauds and errors that may exist. ADP. Payroll – HR – Benefits

On the other hand, it is the responsibility of the auditor, as indicated in ISA 200, to conduct an audit in compliance with the ISA so that the selected procedures are aimed at expressing an opinion as to whether the financial statements examined, in their significant, are free of errors and essential frauds. It should be noted that, clearly, the Standard emphasizes that the auditor is not responsible for preventing fraud and error.

It is also vital what it indicates about the inherent limitations of an audit to obtain absolute security to detect frauds and errors even when the audit has been efficiently planned and efficiently executed per the ISA. Therefore, the auditor’s opinion is issued within a framework of reasonable security and not of certainty.

Once the foregoing has been clarified, the Standard requires the auditor to comply with specific requirements and procedures to mitigate the risk that frauds and important errors may not be discovered. Download A Free Financial Toolkit This requires him to carry out the work with an attitude of professional skepticism and hold planning discussions with the direction of the entity inquiring about the organization’s susceptibility to the risk of fraud or error and the evaluation that the management makes about such possibility. The Standard makes an analysis detailed audit risk (give a wrong opinion on the financial statements subject to examination) and its components: the inherent risk, the risk of control, and the risk of detection, explaining each of them and indicating what attitude should assume the auditor in front of them. The Standard also analyzes the procedures to be performed by the auditor when there are circumstances that indicate a possible distortion of the financial statements and when the distortion is due to potential fraud. In addition to the required procedures, the Standard establishes the effects of these distortions on the auditor’s report. Finally, other issues addressed in ISA 240 relate to the documentation in the auditor’s work papers of the fraud or error risk factors detected; the procedures executed in connection with them; the representations of the direction you must obtain; the communications of the findings of fraud or error to the address; communications of important internal control weaknesses; the issues that arise if the auditor is not able to complete the work; communication to the proposed successor auditor and other related topics. Exit Advisor

Representations of the administration

The auditor must obtain representations in writing from the administration that:

  • It recognizes its responsibility for the start-up and operation of accounting and internal control systems designed to prevent and detect fraud and error.
  • Believes that the effects of uncorrected misstatements of states.

Financial statements accumulated by the auditor during the audit do not significantly affect, either individually or in the total accumulated, the financial statements taken as a whole. A summary of such items should be included in or accompanying the written representation.

  • It has disclosed to the auditor all crucial facts regarding any fraud or presumptive fraud known to the management that may have affected the entity.
  • It has disclosed to the auditor the results of its assessment of the risk that the financial statements may be presented in material misstatement because of fraud.
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