Page 9 - CA Final FADU_ChartBook

CHAPTER 02 GENERAL AUDITING PRINCIPLES & AUDITORS RESPONSIBILITIES

CORE AUDIT PROCESS Occurrence CNO-SA 240.040
P&L
Transaction Completeness
Sales FRAUD, TYPES & REASONS
1000 crore Accuracy
A) Core Audit Process (short/ Brief)
Classification
Acceptance & Continuance Cut off A) Meaning Fraud is an intentional act
I) Initial Phase
Engagement Letter It can be by TCWG, Mgt, Employees or Third parties . It involves
Existence deceiving others and obtaining unjustified benefits. Eg Advance
B/s
Audit Strategy Balances Completeness received are shown as cash sales to increase Profits & Share Price.
L&B
II) planning phase Audit Planning 100 crore Valuation Auditor has to give opinion whether FST are free from Material
Complexities B) Material Frauds Misstatement MMST can be due to fraud or error. That means
Focus on Risk Assessment Procedures Rights & Obligation auditor is interested in those frauds which can lead to MMST.
Judgement
(Collect info & obtain understanding)
Disclosure Notes to A/c i) Fraudulent Financial Reporting
Pressure C) Two types of frauds
III) Execution Phase Further Audit Procedures ii) Missappropriation of Asset
Lease Payment of next 5 years is 20 crores
Test of Controls Focus on ICS D) Reasons There are 3 key reasons because of which fraud can happen
Existence right & obligation
Substantive Procedures Focus on TBD
Completeness Shortcut -> PAO
Analytical Procedures
Accuracy & Valuation There can be internal or external pressure to manipulate FST or
Test of Details P Pressure/Incentive missappropriate assets. one of they key reason for pressure
Classification & understanding is to achieve incentives (self interest pressure)
Collect Sufficient & Appropriate Evidence
Auditor has to examine assertions far MMST
Evaluate evidence Some people may have unethical attitude , value system
FST level Risk overall response where they feel fraud is absolutely fine to achieve business
Material misstatements A Attitude/Rationalisation & personal objectives. Rationalisation means having strong
reason , justification why fraud should be done.
Ask for correction Make team strong & alert
Opinion on FST as per uncorrected Assertion level Risk Further Audit procedure O Opportunity When circumstances are such that it is easy to do fraud. Eg weak ICS
material misstatements TOC
IV) Reporting phase Proper Format
SAP CNO-SA 240.060
Sign
SA 240
Documentation SA 250 FRAUDULENT FINANCIAL REPORTING (FFR)
V) Other Activities
Monitoring
SAs covered SA 260
B) Risk
SA 299 When FST are intentionally adjusted/misstated so as to deceive
A) Definition
Risk is identified & assessed at 2 levels SA 402 users of FST W.r.t financial performance or financial position
Circumstances where MMST can occur in any TBD of FST B) Ways of doing FFR
I) FST Level
E.g. Low Integrity of mgt / Low technical knowledge of PART 01 - SA 240 Shortcut - OMR
CFO or ACC head/change in FRF/ change in software
Omission or When TBD is omitted or misrepresented in FST
O
ii) Assertion Level Misrepresentation (e.g., Provision not recorded, Revaluation not disclosed)
CNO-SA 240.020
Assertion Misapplication of accounting principles given in AS/Ind AS
Misapplication of affecting recognition, amount, classification, presentation,
To say something OBJECTIVES OF SA 240 M
General Meaning AC Principles or disclosure.(E.g. Revenue recognised on dispatch When it
To give some information should be recognised on installation of machine)
Following are objectives set by SA 240 for auditor
All Specific info given by mgt directly or Falsifying supporting documents or accounting records
Broad meaning in Audit R Record Tampering
indirectly through FST (representations by Mgt) I) To identify & assess areas Where there is RMM due to fraud (Fraud Risk) (E.g. Revenue expense shown as Capital expense)
ii) To design & perform audit procedure so as to Obtain SAAE about such areas
Specific Meaning FST has 3 types of Data
iii) Respond appropriately when fraud or suspected fraud is identified
T Transactions Continue on next page...
B Balances
D Disclosures

Each of them gives certain info directly or indirectly

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