AT (3) AUDITORS RESPONSIBILITY

The auditors responsibility is to design the audit to provide

reasonable
assurance
of
detecting
material
misstatements in the financial statements. These
misstatements may emanate from:
1.
2.
3.

Errors;
Fraud; or
Non-compliance with Laws & Regulations

ERROR
The term error refers to unintentional misstatements in
the financial statements, including the omission of an
amount or a disclosure, such as:

Mathematical or clerical mistakes in the

underlying records and accounting data;
An incorrect accounting estimate arising from
oversight or misinterpretation of facts;
Mistake in the application of accounting
policies

entitys assets committed by the entitys

employee. This may include the ff.:
a. Embezzling receipts;
b. Stealing entitys assets;
c. Lapping of accounts receivables.
Elements of Fraud
Fraud involves:
1.
2.
3.

Responsibility of Management and Those Charged with

Governance
PSA 240 requires the following in order to prevent and
detect fraud and errors:
1.

FRAUD
Fraud refers to intentional act by one or more individuals
among management, employees, third party or those
charged with governance, involving the use of deception to
obtain unjust or illegal advantage.
Auditor is primarily concerned with fraudulent acts that
cause a material misstatement in the financial
statements.

2.

2.

Fraudulent Financial Reporting involves the

intentional misstatement or omission of amounts
or disclosures in the financial statements. It is
also known as management fraud. This may
include the ff.:
a. Manipulation, falsification or alteration
of records or documents;
b. Misrepresentation in or intentional
omission of the effects of transactions
from records or documents;
c. Recording of transactions without
substance; or
d. Intentional misapplication of policies.
Misappropriation of Assets also known as
employee fraud. It involves the theft of an

Management
a. Establish a control environment; and
b. Implement internal control policies
and procedures.
Individuals charged with Governance to ensure
the integrity of an entitys accounting and
financial reporting systems.

AUDITORS RESPONSIBILITY
Planning Phase
1.

Types of Fraud
1.

Motivation;
Perceived Opportunity
Rationalization of the Act

2.

when planning, an auditor should make inquiries

about the possibility of misstatements due to
fraud or errors. Such inquiries may include:
a. Management risk assessment due to
fraud
b. Controls established to address the
risk
c. Any material error or fraud that has
affected the entity or currently being
investigated.
The auditor should assess the risk of material
misstatements due to fraud and consider this
assessment in designing audit procedures to be
performed.

Fraud Risk Factor events or conditions that provide an

opportunity, a motive or a means to commit fraud, or
indicate that fraud may have already occurred.