The auditor should plan his work with a reasonable expectation of detecting any material frauds or errors. He should approach his work with an attitude of professional scepticism. He should be on the look out for any factors that increase the risk of fraud or error. Where fraud is suspected the auditor should carry out additional audit procedures as appropriate to dispel his suspicion.
Procedures where fraud or error is suspected: –
1. Consideration of potential effects: – If the auditor believes that the indicated fraud or error could have a material effect on the financial status, he should perform modified or additional procedures.
2. Modified or additional procedures: – This will depend on the nature of the fraud indicated the likelihood of its occurrence and the likely effect on the financial status where such audit procedures do not dispel the suspicion of fraud or error. The auditor should discuss the matter with management and consider if it has been properly reflected in the financial status.
3. Approaching his work with seasonal scepticism.
Implications for the audit
Where fraud is discovered the auditor should report this to management and also consider the implications on other evidence obtained from management. Where the fraud discovered is material the auditor should ensure that the effects are properly reflected in the financial statements. Auditors should consider the effect of the fraud or error on their preliminary risk assessment and on the reliability of management responsibility especially where senior management is involved.
