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Professional responsibilities and liability

2.3 Investigations of possible misstatements

When an actual or potential misstatement is identified, the auditor should:

 understand the nature of the event and the circumstances in which it has
occurred

 gather sufficient information to allow evaluation of the possible effect on the
financial statements.

 perform appropriate modified or additional procedures if the auditors believe
that the indicated fraud or error could have a material effect on the financial
statements.

2.4 Audit procedures when fraud is suspected or discovered

 Obtain written representation from management that they have informed the
auditor of all known or suspected frauds.

 Test year-end journals and adjustments as these may be used to manipulate
the figures in the financial statements.

 Test accounting estimates and areas of management judgment for
reasonableness.

 Make audit procedures unpredictable so the client cannot hide fraud in areas
the auditor is not expected to test.

 Use suitably experienced staff to audit areas of particular risk.

There is an unavoidable risk that some material misstatements may not be detected
even if properly planned in accordance with ISAs as fraud is likely to be concealed.

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