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Understand the client’s
applicable law enforcement authorities to lead
the investigation.

Document your actions and determine the plan to investigate the
situation’s effect on the audit
Consider the possible outcomes of a client’s fraud
investigation and its impact on the audit, which allegations of fraud. If
could include termination of the employee accused
of wrongdoing, a fidelity bond claim, legal action,
or a combination of these. How a client responds to the fraud is material, the
such allegations or suspicions of fraud will directly
affect how an auditor should respond. If a client client will likely need to
does not take such allegations seriously, withdrawal
from the engagement may be necessary.
If a forensic investigation is performed, consider engage legal counsel.
requesting a copy of the forensic investigation
report from the attorney or fraud examiner to
determine the impact of the findings on the current
audit and whether reliance can be placed upon the
conclusions of the investigation report to support investigation to follow up on their suspicions,
an audit opinion. Note that when using such a ensure that the firm can comply with professional
specialist auditors must avoid independence issues standards to avoid any breaches of independence.
relating to the audit engagement. If manage- Ensure audit documentation is sufficient to
ment requests your firm to perform a forensic demonstrate adequate support for significant

Key questions

As you gather information relating to allegations or suspicions or her employment tenure?
of fraud during an audit, consider the following key questions:
■ What access does, or did, the suspect have to assets and
■ Who will investigate the suspicious activity and follow up systems throughout his or her tenure?
on the allegations?
■ What are the possible ways the suspect could have
■ What are the client’s policies, and what outcomes may committed fraud, considering his or her access and
come from its investigation, such as termination of authorization to assets and systems? Has the suspect
the employee, a fidelity bond claim, legal action, or a confessed to committing fraud? If so, what did the suspect
combination of these? confess?

■ What financial statement misstatements are suspicious?
■ Are there any controls in place that would mitigate fraud
What transactions are suspicious? What assets are risk and limit the amount of possible fraud committed?
suspected of being missing?
■ Can you estimate a “worst-case scenario” amount of how
■ Who is the suspect? Is there more than one?
much cash or how many assets were stolen?
■ How long has the suspect been employed at the
■ What misstatements to the financials could result from
organization? Note: The worst-case scenario is when
allegations are toward a very long-tenured employee with the suspected fraud? Consider the possible impact on
beginning net assets if prior years are involved.
limitless access and authorization to the organization’s
assets and systems throughout his or her tenure. ■ What disciplinary measures have already been taken
toward the suspect? Did the client place the suspected
■ What is the period under suspicion?
employee on leave and limit his or her access to assets and
■ What roles/positions did the suspect have throughout his systems?

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