Flowchart Diagram of SAS No. 99
Professional skepticism à
Fraud is a legal concept. Auditor do not make legal determination of
whether fraud has occurred.
There are two types of fraud:
■ Misappropriation of assets.
■ Fraudulent financial reporting.
Management is responsible for designing and implementing programs
and controls to present, defer and detect fraud.
(paragraphs 2-6, 8-12)
Consideration of
other information for
example, client
acceptance
(paragraphs 3-4)
Brainstorming
(paragraphs 14-18)
Inquires—internal,
external
(paragraphs 19-27)
Incentive/pressure
Basic
concepts
Fraud triangle
(pargraph 2)
Rationalization
Opportunity
Analytical
procedures
(paragraphs 28-30)
Fraud risk factors
(paragraph 31-33)
Appendix with
examples of fraud
risk factors
(paragraph 84)
Specific analytical
procedures related to
revenue recognition
(paragraph 29)
Mandatory
risk
procedures
Overall risk assessment
(paragraphs 35-37, 40)
Risk of management override
(paragraph 42)
Specifically identified fraud
risks
(paragraphs 38-39)
Presumption that revenue
recognition is fraud risk
(paragraph 41)
Review and/or testing of entity programs and controls
■ Broad programs and controls
■ Specific controls
. .
(paragraph 43-45)
Mandatory review of
accounting estimates for
biases (paragraph 63)
Overall audit responses
(paragraphs 46-50)
Specific responses to
management override risk
(paragraphs 57-67)
Other specific responses
(paragraphs 51-53, 55-56)
Specific revenue recognition
procedures
(paragraph 54)
Audit documentation (paragraphs 83-84)
Mind-set that fraud is a possibility, regardless of past experiences ß Professional skepticism (paragraph 13)
Responsibilities and functions of the independent auditor. The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether caused by error or fraud (SAS No. 99 (paragraph 1)).
Mandatory
risk
decisions
Evidence
procedures
Be alert to conditions or events that may arise during audit and conduct final fraud analysis
(paragraphs 68-74)
Misstatement or material
irregularities?
For the full text of SAS no. 99, “Consideration of
Fraud in a Financial Statement Audit.” see Official
Releases, Jan.03, page 105, or order from
www.cpa2biz.com. Information on the SAS also is
available at www.aicpa.org.
No
Audit opinions
Yes
Response to misstatements?
(paragraphs 75-78)
Communications about
misstatements?
(paragraphs 79-82)
Final
decisions