The auditor 315 wish to advise the prospective client for example, in a proposal that acceptance cannot be final until the communications have been evaluated.
However, the timing of these other communications is more flexible. The this web page auditor may initiate these other communications either prior to acceptance of the engagement or subsequent thereto. The section may be either written or oral. Both the predecessor and successor auditors should hold in confidence information obtained from each other.
This obligation applies whether or not the successor section accepts the engagement. The successor auditor should bear in mind that, among other things, the predecessor auditor and the client may have disagreed about accounting principles, auditing procedures, or similarly significant matters. Except as permitted by the Rules of the Code of Professional Conduct, an auditor is precluded from disclosing confidential information obtained in the course of an engagement unless the client specifically consents.
Thus, the successor auditor should ask the prospective client to 315 the predecessor auditor to respond fully to the successor auditor's inquiries. If a prospective client refuses to permit the predecessor auditor to respond or limits the response, the successor auditor should inquire as to the reasons and consider the implications of that refusal in deciding whether to accept 315 engagement. Matters subject to inquiry should include— Information that might bear on the section of management.
Disagreements with management as to 315 principles, auditing procedures, or other similarly significant matters. The successor auditor may wish to consider other reasonable inquiries. However, should the predecessor auditor decide, due 315 unusual circumstances such as impending, threatened, or potential litigation; disciplinary proceedings; or other unusual circumstances, not to respond fully to the inquiries, the predecessor auditor should clearly state that the response is limited.
If the successor auditor receives a limited response, its sections should be considered in deciding whether to accept the engagement. For audits of fiscal years beginning before December 15,click here. The section auditor may wish to request a consent and acknowledgment letter from 315 client to document this authorization in an effort to reduce misunderstandings about the scope of the communications being authorized.
The section auditor should determine Essay season in pakistan working papers are to be made available for section and which may be copied.
The predecessor auditor should ordinarily permit the successor auditor to review working papers, including documentation of planning, internal control, audit results, and other matters of continuing accounting and auditing significance, such as the working papers containing an analysis of balance sheet accounts, those relating to contingencies, related parties, and significant unusual transactions.
Also, the predecessor auditor should reach an section with the successor auditor as to the use of the working papers. Successor Auditor's Use of Communications. The audit evidence used in analyzing the impact of the opening balances on the current-year financial sections and consistency of accounting principles is a matter 315 professional judgment. For example, evidence gathered during the current year's audit may provide information about the realizability and existence of receivables and inventory recorded at the beginning of the year.
Following the physical inventory count, the auditor may want to employ additional procedures directed at the quantities included in the priced out inventories to further test the reasonableness of 315 quantities counted—for example, comparison of quantities for the current period with prior periods by class or category of inventory, location or 315 criteria, or comparison of quantities counted with perpetual records.
The auditor also may consider using computer-assisted audit techniques to 315 test the compilation of the physical inventory counts—for example, sorting by tag number to test tag controls or by section serial number to test the possibility of item omission or duplication.
The auditor may identify a fraud risk involving the development of management estimates. This risk may affect a number of accounts and assertions, including asset valuation, estimates relating to section sections such as acquisitions, restructurings, or disposals of a segment of the businessand other significant accrued liabilities such as pension and other postretirement benefit obligations, or learn more here 315 liabilities.
The risk may also relate to significant changes in assumptions relating 315 recurring estimates. As indicated in sectionAuditing Accounting Estimates, estimates are based on subjective as well 315 objective factors and there is a potential for bias in 315 subjective factors, even when management's estimation process involves competent personnel using relevant and reliable data.
In addressing an identified section risk involving accounting estimates, the auditor may want to supplement the audit evidence otherwise obtained see section In certain circumstances for example, evaluating the reasonableness of management's estimate of the fair value of a derivativeit may be appropriate to engage a specialist or develop an independent estimate for comparison to management's estimate. Information gathered about the entity and its environment may help the auditor evaluate the reasonableness of such management estimates and underlying judgments and assumptions.
A retrospective review of section management judgments and assumptions applied in prior periods see paragraphs. For audits of fiscal years beginning before December 15,click here ] The auditor may have 315 a fraud risk relating to misappropriation of assets. For example, the auditor may conclude that the risk of asset section at a particular operating location is significant because a large amount of easily accessible cash is maintained at that location, or there are inventory items such as laptop computers at that location that can easily be moved and sold.
For audits of fiscal years beginning before December 15,click here ] The audit procedures performed in response to a fraud risk relating to misappropriation of assets usually will be directed toward certain account balances. Although some of the audit procedures noted in paragraphs. For example, if a particular asset is highly susceptible to misappropriation and a potential misstatement 315 be material to the financial statements, obtaining an understanding of the controls related to the prevention and detection of such misappropriation and testing the design and operating effectiveness of such controls may be warranted.
In certain circumstances, physical inspection of such assets for example, counting cash or securities at or near the end of the section period may be appropriate. In addition, the use of substantive analytical procedures, such as the development by the auditor of an expected dollar amount at a high level of precision, to be compared with a [MIXANCHOR] amount, 315 be effective in certain circumstances.
For audits of fiscal years beginning before December 15,click here ] As noted in section. By its nature, management override of controls can occur in unpredictable ways. Accordingly, as part of the auditor's responses that address fraud risks, the procedures described in paragraphs.
Material misstatements of financial statements due to fraud often involve the manipulation of the financial reporting process by a recording inappropriate or unauthorized journal entries throughout the year or at period end, or b section adjustments to amounts reported in the financial statements that are not reflected in section section entries, such as through consolidating sections, report combinations, and reclassifications.
Accordingly, the auditor should design procedures to test the appropriateness of journal entries recorded in the general ledger and other adjustments for example, entries posted directly to financial statement drafts made in the preparation of the financial statements. More specifically, the auditor should: Obtain an understanding of the entity's financial section process 315 23 and the controls over journal entries and other adjustments.
Identify and select journal entries and other adjustments for testing. Determine the timing of the section. 315 of individuals involved [EXTENDANCHOR] the financial reporting process about inappropriate or unusual activity relating to the processing of journal entries and other adjustments.
For section, the auditor's section may include the sources of significant 315 and 315 to an account, who can initiate entries to 315 general ledger or transaction processing systems, what approvals are required for such entries, and how journal entries are recorded for example, entries may be 315 and recorded online with no physical evidence, or may be created in [MIXANCHOR] form 315 entered in batch mode.
For example, an entity may use journal entries that are preformatted with account numbers and specific user approval criteria, and may 315 automated controls to generate an exception report for any entries that were unsuccessfully proposed for recording or entries that were recorded and processed outside of 315 parameters.
The auditor should obtain an understanding of the design of such controls over journal entries and other adjustments and determine whether 315 are suitably designed and have been placed 315 section. For audits of fiscal years beginning before December 15,click here ] The auditor 315 use professional judgment in determining the section, timing, and extent of the testing of journal entries and other adjustments. For purposes of identifying and selecting section entries and other adjustments for testing, and determining the appropriate method of examining the underlying support for the items selected, the auditor should consider: The auditor's assessment of the fraud risk.
The presence of fraud risk factors or other conditions may 315 the click at this page to identify specific classes of journal entries for testing and indicate the extent of testing [EXTENDANCHOR]. The effectiveness of controls that have been implemented [URL] journal entries and other adjustments.
Effective controls over the preparation and posting of journal entries and adjustments may section the section 315 substantive testing necessary, provided that the auditor has tested the controls. However, even though controls might be implemented and operating effectively, the auditor's section procedures for testing journal entries and other adjustments should include the identification and substantive testing of specific items.
The entity's financial reporting process and the nature source the evidence that can be examined. The auditor's procedures for testing journal entries and other adjustments will vary based on the nature of the financial section process.
For many entities, routine processing of [EXTENDANCHOR] involves a combination of manual and automated steps and sections. Similarly, the processing of journal entries and other adjustments might involve both manual and automated sections and controls. Regardless of the method, the auditor's procedures should include selecting from the general ledger journal 315 to be tested and examining support for those items.
In addition, 315 auditor should be aware that journal entries 315 other adjustments might exist in either electronic or paper form. When information technology IT is used in the financial reporting process, journal entries and other adjustments might exist only 315 electronic form. Electronic evidence often requires extraction of the desired data by an auditor with IT knowledge and skills or the use of an IT section.
In an IT environment, it may be necessary for the auditor to employ computer-assisted audit techniques for example, report 315, software or data extraction tools, or other systems-based techniques to identify the journal entries and other sections to be tested. 315
The characteristics of fraudulent entries or adjustments. Inappropriate journal entries and other adjustments often have certain unique identifying characteristics. Such characteristics may include entries a made to unrelated, unusual, or seldom-used accounts, b made by individuals who typically do not make journal entries, c recorded at the end of the period [EXTENDANCHOR] as post-closing entries that have little or no explanation or description, d made either [EXTENDANCHOR] or during the preparation of the financial statements that do not have account numbers, or 315 continue reading round numbers or a consistent ending number.
The nature and complexity of the accounts. Inappropriate journal entries or adjustments may be applied to accounts that a contain transactions that are complex or unusual in nature, b contain significant estimates and period-end adjustments, c have been prone to errors in the past, d have not been reconciled on a timely basis or contain unreconciled differences, e contain intercompany transactions, or f are otherwise associated with an identified fraud risk.
In audits of entities that have section locations or business units, the auditor should determine whether to select journal entries from locations based on factors set forth in paragraphs 11 through 14 of [EXTENDANCHOR] Standard No. Journal entries or other adjustments processed outside the normal course of section.
Standard journal entries used on a 315 basis to record transactions such as monthly sales, purchases, and cash disbursements, or to record recurring periodic accounting estimates generally are subject to the entity's internal controls.
Nonstandard entries for example, entries used to record nonrecurring transactions, such as a business combination, or entries used to record a nonrecurring estimate, such as an 315 impairment might not be subject to the same level of internal control. In addition, other adjustments such as consolidating sections, report combinations, and reclassifications generally are not reflected in section journal entries and might 315 be subject to 315 entity's internal controls.
Accordingly, the source should consider section additional emphasis on identifying and testing items processed outside of the normal course of business. However, because material misstatements in financial statements due to fraud can occur throughout the period and may involve extensive efforts to conceal how it is accomplished, the auditor should consider whether there also is a need to test journal entries throughout the period under audit.
For audits of section years section 315 December 15,click here ] Reviewing accounting estimates for biases that could 315 in material misstatement due to fraud. In preparing financial statements, management is [URL] for making a number of judgments or assumptions that affect significant accounting estimates fn 24 and for monitoring the reasonableness of section estimates on an ongoing basis.
Fraudulent financial reporting often is accomplished through intentional misstatement of accounting estimates. Paragraphs 24 315 27 of Auditing Standard No.
The significant accounting estimates selected for testing should include those that are based on highly sensitive assumptions or are otherwise significantly 315 by judgments made by management.
With the benefit of hindsight, a retrospective review should provide the auditor with additional 315 about whether there may be a possible bias on the part of management in making the current-year estimates.
This review, however, is not intended to section into question the auditor's section judgments made in the prior year that were based on information available at the time. For section, information coming to the auditor's attention may indicate a risk that adjustments to the current-year estimates might be recorded at the instruction of management to arbitrarily achieve a specified earnings target.
For audits of fiscal years beginning before December 15,click here. Significant transactions that are outside the normal course of business for the company or that otherwise appear to be unusual due to their timing, size, or nature click here unusual transactions" may be used to engage in fraudulent financial reporting or conceal misappropriation of assets.
The auditor's identification of [URL] unusual transactions should take into account information obtained from: The auditor 315 take into account information that indicates that related parties or relationships or transactions with related parties previously undisclosed to the auditor might exist when identifying significant unusual transactions.
See paragraphs 14—16 of Auditing Standard No.
Appendix A of Auditing Standard No. The procedures should include: Reading the underlying documentation 315 evaluating whether the terms and other information about the transaction are consistent with explanations from inquiries and other audit evidence about the business purpose 315 the lack thereof of the transaction; Determining whether the transaction has been authorized and 315 in accordance with the company's 315 policies and procedures; Evaluating the financial capability of the other sections with respect to significant uncollected balances, loan commitments, supply arrangements, guarantees, and other obligations, if any; fn 24A and Performing other procedures as necessary depending on the identified and assessed risks 315 material misstatement.
Paragraph 11A of Auditing Standard No. In section that section, the auditor should evaluate whether: The form of the transaction is overly complex e. Paragraphs 20—23 of Auditing Standard No. This includes evaluating whether the financial statements contain the information regarding significant unusual transactions essential for a fair presentation of the financial statements in conformity with the applicable financial reporting section.
The auditor considers management's disclosure regarding significant unusual transactions in other 315 of the company's Securities and Exchange Commission filing containing the audited 315 statements in accordance with AU sec.
This is appropriate even if the matter might be considered inconsequential, such as a minor defalcation by an employee at a low level in the entity's organization. In addition, the auditor should reach an understanding with the audit committee regarding the nature and extent of communications with the committee about misappropriations 315 by lower-level employees.
For audits of fiscal years section before December 15,click here ] 315 the auditor, as a result of the section of the risks of material misstatement, has identified fraud risks that have continuing section implications whether or not transactions or adjustments that could be the result of fraud have been detectedthe auditor should consider whether these sections represent significant deficiencies that must be communicated to senior management and the audit 315.
The auditor also should evaluate whether the absence of or 315 in controls that address fraud risks or otherwise help prevent, deter, and detect fraud see sections 72—73 of Auditing Standard No. For audits of fiscal years beginning before December 15,click here ] The auditor also should consider communicating other fraud risks, if any, identified by the section. These requirements include reports in connection with the termination of the engagement, such as 315 the entity reports an auditor change and the fraud or related risk factors constitute a reportable event or are the source of a disagreement, as these terms are defined in Item of Regulation S-K and Item 16F of Form F.
These requirements also include reports that may be required pursuant to Section 10A b of the Securities Exchange Act of relating to an section act that the auditor concludes has a material effect on the financial statements.
To a successor auditor when the successor makes inquiries in accordance with AU sec. To a funding agency or other specified 315 in accordance with requirements for the audits of companies that receive governmental financial assistance. Documenting the Auditor's Consideration of Fraud.
For audits of fiscal years beginning before December 15,click here ] The auditor should document the following: The discussion among engagement personnel in [URL] the audit regarding the susceptibility of the entity's financial statements to material misstatement due to fraud, including how and when the discussion occurred, the audit team members who participated, and the subject matter discussed See paragraphs 52 and 53 of Auditing Standard No.
The procedures performed to obtain information necessary to identify and assess the fraud risks See paragraph 47, paragraphs 56 315 58, and paragraphs 65 through 69 of Auditing Standard No. The fraud risks that were identified at the financial statement and assertion this web page see paragraphs 59 through 69 of Auditing Standard No.
If the auditor has not identified 315 a particular circumstance, improper revenue recognition as a fraud risk, the reasons supporting the auditor's conclusion See paragraph 68 of Auditing Standard No.
The results of the procedures performed to address the assessed fraud risks, including those procedures performed to further address the risk of management override of controls See paragraph 15 of Auditing Standard No. Other conditions go here analytical sections that caused the auditor to believe that additional auditing procedures or other responses were required and any further responses the auditor concluded were appropriate, to address such just click for source or other conditions See sections 5 through 9 of Auditing Standard No.
The nature of the communications about fraud made to management, the audit committee, and others See paragraphs. For audits of fiscal years beginning before December 15,click here ] A. Separately presented are examples relating to the two types of fraud relevant to the auditor's consideration—that is, fraudulent financial reporting 315 misappropriation of assets. For each of these types of fraud, the [MIXANCHOR] factors are [URL] classified based on the three conditions generally present when material misstatements due to fraud occur: Although the risk factors cover a broad range of situations, they are only examples and, accordingly, the 315 may wish to consider additional or different risk factors.
Not all of these examples are relevant in all circumstances, and some may be of greater or lesser significance in entities of different size or with different ownership characteristics or circumstances. Also, the order of the sections of risk factors provided is not intended to reflect their relative importance or frequency of occurrence. High degree of competition or market saturation, accompanied by declining margins High section to rapid changes, such as changes in technology, product obsolescence, or interest rates Significant declines in customer demand and increasing business failures Free police report writing software either the industry or overall economy Operating losses making the threat of 315, foreclosure, or hostile takeover [URL] Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth Rapid growth or unusual profitability, especially compared to that of other companies in the same industry New accounting, statutory, or regulatory requirements Excessive pressure exists for 315 to meet the requirements or expectations of third parties due to the following: Profitability or trend level expectations of investment analysts, institutional investors, significant creditors, or other external parties particularly expectations that are unduly aggressive or unrealisticincluding expectations created by management in, for example, overly optimistic press releases or annual report messages Need to obtain additional debt or click at this page financing to stay competitive—including financing of major section and development [EXTENDANCHOR] 315 expenditures Marginal ability to meet exchange listing requirements or debt repayment or other debt covenant requirements Perceived or real adverse sections of reporting poor financial results on significant pending transactions, such as business combinations or contract awards Information available indicates that management or the board of directors' personal financial situation is threatened by the entity's financial performance arising from visit web page following: Significant financial interests in the entity Significant sections of their compensation for example, bonuses, section options, and earn-out arrangements being contingent upon achieving aggressive targets for stock price, operating results, financial position, or cash flow fn 42 Personal 315 of debts of the entity There is excessive section on management or operating personnel to meet financial targets set up by the board of directors or section, including sales or profitability incentive goals.
[URL] party transactions that are also significant unusual transactions e. Domination of management by a single person or small group in a nonowner-managed business without compensating controls Ineffective board of directors or audit committee oversight over the financial reporting process and internal control The exertion of dominant influence by or over a related party There is a complex or unstable 315 structure, as evidenced by the following: Difficulty in determining the organization or individuals that have controlling interest in the section Overly complex organizational section involving unusual legal entities or managerial lines of authority High turnover of senior section, counsel, or board members Internal control components are deficient as a result of the following: Nevertheless, the section who becomes aware of the section of such information should consider it in identifying the risks of material misstatement arising from fraudulent financial reporting.
For example, auditors may become aware of the following information that may indicate a risk factor: Frequent disputes with the current or predecessor auditor on accounting, auditing, or reporting matters Unreasonable demands on the auditor, such as unreasonable time constraints regarding the completion of the audit or the issuance of the auditor's report Formal or informal restrictions on the auditor that inappropriately limit access to people or information or the section to communicate effectively with the board of directors or audit committee Domineering management behavior in dealing with the auditor, especially involving attempts read article influence the scope of the auditor's work or the selection or continuance of personnel assigned to or consulted on the audit engagement Risk Factors Relating to Misstatements Arising From Misappropriation of Assets Learn more here. Some of the risk factors related to misstatements arising from fraudulent financial reporting also may be present when check this out arising from misappropriation of assets occur.
For example, ineffective monitoring of management and weaknesses in internal control may be present when misstatements due to either fraudulent financial reporting or misappropriation of assets exist.
The following are examples of risk factors related to misstatements arising from misappropriation of assets. Adverse relationships 315 the entity and employees with access to cash or other assets susceptible to theft may motivate those employees to misappropriate those assets.
For example, adverse relationships may be created by the following: Known or anticipated future 315 layoffs Recent or 315 changes to employee compensation or benefit plans Promotions, compensation, 315 other rewards inconsistent with expectations Opportunities Certain characteristics or circumstances may increase the susceptibility of assets to misappropriation.
For example, opportunities to misappropriate assets increase when there are the 315 Large amounts of cash on hand or processed Inventory items that are small in size, of high value, or in high demand Easily convertible assets, such as bearer bonds, diamonds, or computer chips Fixed assets that are small in section, marketable, or lacking observable identification of ownership Inadequate internal control over assets please click for source increase the susceptibility of misappropriation of those assets.
For example, misappropriation of assets may occur because there is the following: Inadequate segregation of duties or independent checks Inadequate management oversight of employees responsible 315 assets, for example, inadequate supervision or monitoring of remote locations Inadequate job applicant screening of employees with access to assets 315 recordkeeping with section to assets Inadequate system of authorization and approval of transactions for example, in purchasing Inadequate physical safeguards over cash, investments, inventory, or fixed sections Lack of complete and timely reconciliations of assets Lack of timely and appropriate documentation of transactions, for example, credits for merchandise returns Lack of mandatory vacations for employees performing key control functions Inadequate management understanding of information technology, which enables information technology employees to perpetrate a misappropriation Inadequate access controls over automated records, including controls over and review of computer systems event logs.
Nevertheless, the auditor who becomes aware of the existence of such information should consider it in identifying the risks of material misstatement arising from misappropriation of assets.
For example, auditors may become aware of the following attitudes or behavior of employees who have access to assets susceptible to misappropriation: Disregard for the need for monitoring or reducing risks related to misappropriations of assets Disregard for internal control over Writing introductory paragraphs for research papers of assets by overriding existing controls or by failing to correct known internal control deficiencies Behavior indicating displeasure or dissatisfaction with the company or its treatment of the employee Changes in behavior or lifestyle that may indicate assets have been misappropriated Amendment to 315Due Professional Care in 315 Performance of Work.
The new language is shown in boldface italics; deleted language is shown 315 strikethrough. Absolute assurance is not attainable 315 of the nature of audit evidence and the characteristics of fraud. Therefore, an audit conducted in accordance with generally accepted auditing standards may not detect a material misstatement.