What are the Director’s Responsibilities?
Directors have primary responsibility for prevention and detection of fraud and error by:
- Implement and monitor internal controls
- Produce the financial statements
In doing so director should:
- Select and apply suitable accounting policies
- Prepare the financial statements on the correct basis (e.g. going concern vs break-up)
- Deliver financial statements to Companies House
What are the Auditor’s Responsibilities?
- Form an independent opinion r.e truth and fairness
- Detect material misstatements by performing reasonable assurance engagement
- No obligation to prevent fraud
What does it mean by auditors conducting themselves with professional scepticism?
Requires the auditor to:
- Having a questioning mind and are willing to challenge management assertions
- Seek to understand management motivations for possible misstatements of the F/S
- Investigate the nature and cause of misstatements identified and avoid jumping to conclusions.
What are the two types of fraud with examples.
- Fraudulent financial reporting
e.g. manipulation and falsification of docs
misapplication of accounting standards - Misappropriation of assets
e.g. Embezzlement
Theft
What are the management’s responsibility under the ISA 240 & ISA 250?
The ISA states the those charged with governance have primary responsbility for the prevention and detection of fraud/ non- compliance with laws and regulations.
How can management fulfil their responsibility required under the ISA?
- Creating a culture of honesty and ethical behaviour
- Establishing a sound system of internal controls
- Implement policies and procedures to ensure efficient conduct of the company’s business
What are the director’s responsibility under the ISA 240 & ISA 250?
- To obtain reasonable assurance that the financial statements are free from material misstatements.
- Assess the risk of material misstatements
- Where fraud or non-compliance is discovered they should report to the appropriate party
What is the audit approach?
- Understand the entity and its environment ie inherent risks such as incentives to commit fraud
- Enquiries to management and internal audit to assess
risk of fraud - Assess the adequacy of the internal control to prevent and detect fraud
- Maintain professional scepticism
- Respond to assessed risks
Bribery Act
- Bribery is the intention to induce improper
performance - Offence for the giver and receiver
- Applies even if no part of the activity took place in the UK
- Reasonable hospitality is not prohibited
- Facilitation payments are bribes
- Failure to implement controls to prevent bribes being paid by a company is an offence
- Having ‘adequate procedures’ in place to
prevent is a defence - BUT adequate procedures are undefined
When to report to those charged with governance
If they actually discover or suspect fraud or noncompliance it should be reported to the appropriate level ie the Audit Committee both immediately and formally in the management letter at the end of the audit
When to report to Shareholders
If fraud or error causes the financial statements to not give a true and fair view the auditor’s report should be modified appropriately
When to report to Third parties
The auditor shall determine whether there is a responsibility to report the occurrence or suspicion to a party outside the entity. For example, if an illegal act leads to the proceeds of crime, this should be reported to the NCA
What is money laundering?
Using, acquiring, retaining, concealing, disguising, converting and transferring proceeds of crime and criminal property.
The term criminal property is also inclusive of the benefits gained from criminal conduct ie tax evasion, illegally saved costs and bribery.
- Placement
- Layering
- Integration
What are the professional accountant’s responsibilities when it comes to suspected money laundering?
- Firm to establish a Money Laundering Nominated Officer (MLNO)
- MLNO evaluates and reports to NCA
- Firm should ensure all employees are trained re ML obligations
- Duty to report overrides confidentiality
What are the offences of money laundering?
- Acquiring, processing, concealing etc
- Failure to report
- Tipping off
What should the auditor do when money laundering is suspected?
- Report to the MLNO
- MLNO to report to NCA
- Avoid tipping off
- Ensure done timely to avoid failure to report
- Consider Impact on the financial statements
- Consider management’s integrity
What are the reasons why the auditor should act when money laundering is suspected?
-Suspicion of money laundering give the auditor a responsibility under the Proceeds of Crime Act
- Activity represents the proceeds of crime
- Criminal offence if the accountant fails to report or tips off
- Tipping off may prejudice an investigation
