Investigating The Auditor 's Responsibility

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The purpose of the memo is to describe the auditor 's responsibility to consider fraud in financial statements by following eight steps to make sure the financial statements are free of material misstatement. The memo begins with an elaboration of fraud and the concepts related to it. A list of the steps is then provided before finally giving an outline of the various generic red flags of fraud that can act as a lead to the auditor in identifying fraud.
Fraud is misappropriation and misuse of the company 's assets, revenues and other resources. There are various types of fraud that can be committed with financial statements, including timing differences, fictitious revenues, concealed liabilities, improper disclosures, and improper asset
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The auditor then reviews the requirements against his capability to conduct the audit effectively and focus his attention on the most critical areas. The auditor should brainstorm on the areas that the client’s financial statements may be susceptible to fraud, how the assets of the client can be misappropriated and finally, how the management and those charged with governance can perpetrate fraudulent financial statements and be able to conceal the frauds. The auditor should also brainstorm any known internal and external factors that can be an incentive, or that can create pressure to the management to and other employees to commit fraud. The auditor should ensure the brainstorming session identifies the potential problems that are likely to occur during and after the audit process. The auditor brainstorming with the audit team helps ensure the work is implemented expeditiously and that no areas are left un-attended to. It also ensures that the work is properly coordinated among the staff and that all resources are well coordinated towards the achievement of the audit objectives.
The auditor then carries out an assessment of the engagement risks involved. These are the risks that are likely to come up during the audit period. The auditor should perform risk assessment procedures to get an understanding of the client’s business environment. The engagement risks assessment helps the auditor get more understanding of the
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