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FRAUD

Based on the information Below are select requirements contained in

AU-C Section 240 as well as additional best
you have learned, consider practice suggestions.

Notify the right people
your ability to continue Depending upon who is suspected of the fraud,
identify the appropriate members of management
or those charged with governance to contact. Notify
and finalize the audit only those client parties who need to know. Follow

the communication guidance found in AU-C Sec-
engagement and, relatedly, tion 240, Paragraphs .39 through .41.
In addition, consider whether you are legally
required as the auditor to report the suspicion
whether withdrawal from of fraud to a regulatory or enforcement author-
ity outside the organization (see ¶ .42 of AU-C
Section 240). Absent a legal or regulatory require-
the audit is appropriate ment, remember that it is the auditor’s profes-
sional duty to maintain client confidentiality on
such matters.
given the circumstances Ask questions

and considering applicable Gather essential facts about the suspicions or
allegations relevant to the audit. (See the sidebar,
“Key Questions,” to help with this information-
laws or regulations. gathering process.)
If the suspected individual has confessed to
fraud or if irrefutable evidence has already been
obtained regarding the allegations, consider inquir-
ing what disciplinary measures have been taken
.36, and .37, which address what auditors ought and if the client has removed the suspect’s access
to do if they identify a misstatement in a finan- to the organization’s accounting system and assets.
cial statement and have reason to believe that the Depending on the specific circumstances (and with
cause may be fraud. guidance from the company’s HR department), a
client may have already terminated the employ-
ment of the suspect and changed passwords and
AICPA RESOURCES locks, collected keys, and removed check-signing
authority and access to bank accounts, accounting
Articles systems, etc.
“Mitigating the New Fraud Realities,” CPA Insider, Dec. 6, 2021 Understand the client’s plan to investigate the
allegations of fraud. If the fraud is material, the
“Diving Deeper Into Smaller Frauds Due to COVID-19,” JofA, Nov. 19, 2021
client will likely need to engage legal counsel, who
may then engage a forensic investigator or notify

IN BRIEF The legal determination of whether Consideration of Fraud in a Financial
fraud has occurred is not one that is Statement Audit.
■ If suspicions or allegations of fraud made by the auditor. ■ Evaluate whether you can continue the
surface during an audit, never make ■ Notify all the people who need to know engagement or should withdraw from
conclusive statements of guilt or and no one else. Gather essential facts. the audit. Document all your steps and
innocence either orally or in writing. For guidance look to AU-C Section 240, actions in a sufficiently detailed way.

To comment on this article or to suggest an idea for another article, contact Courtney Vien at Courtney.Vien@aicpa-cima.com.

16 | Journal of Accountancy August 2022