Page 179 - COSO Guidance

Brainstorming

AU-C section 240, Consideration of Fraud in a Financial Statement Audit (AICPA, Professional Standards),
addresses fraud and states that the auditor should specifically assess the risk of material misstatement
due to fraud. This assessment should note that material misstatements due to fraud could be from
fraudulent financial statements or misappropriation of assets. Generally, auditors have these discussions
not only during the planning phase of the audit but continuously throughout the audit. Entity controllers
may benefit from adopting practices used by auditors in assessing the risk of fraud.
The initial meeting held by auditors is what practitioners call brainstorming. During this meeting, the
group usually addresses areas such as those subject to management’s override of controls, unusual or
complex accounting transactions, important factors related to the system of internal control, fraud risk
factors, and how materiality will be used to determine the extent of testing.

AU-C section 315 notes that the members of the engagement team (including the auditor with final
responsibility for the audit) should, in addition to the discussion previously concerning material fraud,
discuss the susceptibility of the entity’s financial statements to material misstatements. This
brainstorming session can be held concurrently during the discussion of the susceptibility of the financial
statements being materially misstated due to fraud. Alternatively, the brainstorming session could be
held as a separate session.

AU-C section 315 states that professional judgment should be used to determine who, in addition to the
key members of the audit team and the auditor with final responsibility, should be present at the meeting.
Other professionals, such as those with specific skills or knowledge (for example, an IT specialist) and
those responsible for the audits of components might be consulted by the engagement partner.

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