Question

AU Section 316 requires auditors to consider fraud in the financial statement audit. Research this section of the AICPAs standards and discuss some of the activities you would implement in your audit of a publicly traded company to document your audit teams consideration of fraud in the clients financial statements. In your discussion, include who would be involved in the brainstorming session and why.

Answer 1

AU Section 316 and AU-C Section 240 require auditors to complete the following general tasksto satisfy their fraud detection responsibility:
1.Discuss among the audit team the risks of material misstatements
2.Compilation of information needed to identify the risks of material misstatement due to fraud.
3.Identify the risks
4.Assess the identified risks after taking into account internal controls
5.Respond to the results of the risk assessment by changing time and scope of audit procedures
6.Evaluate audit test results.
7.Communicate the results Those who are concerned with governance
8.Document procedures and their outcomes

There are two different types of fraud that might be present the first is misappropriation of assets. This would be a fraud that is committed by employees of a company on the entity itself.
Embezzlement is another term used for this type of fraud
Fraudulent financial statements are the other item that must be looked for during an audit and us usually perpetrated by a senior management member because of their access and opportunity to commit such an act as is mentioned in the fraud triangle

The fraud triangle consists of when a pressure or perceived pressure exists with a person or group of people. It also is when the opportunity is present for a fraud to be committed and finally it is accompanied by rationalization of the fraud. These are the three points or legs of the fraud triangle.
Different approaches must be taken by an audit team to search out fraudulent behavior when it exists. The different risk factors that are present should also be considered during brainstorming sessions during the planning phase of an audit and to see who should be part of the brainstorming process
There needs to be ever present a level of professional skepticism both during brainstorming sessions and during the tactical execution of the audit itself.
Individual brainstorming can be as important as group brainstorming and should be done prior and after a group brainstorming session.
Independence is needed both in terms of appearance and mind during all this.
Professionalism should be maintained.