Adrian JohnsonTLDR:
-The American Institute of Certified Public Accountants (AICPA) released a refresher on fraud detection as part of an assurance engagement.
-The responsibilities of accountants relating to fraud vary depending on the type of engagement being performed, whether it’s a preparation, compilation, review, or audit engagement.
-In each type of engagement, the accountant is responsible for obtaining management’s agreement on acknowledging and understanding their responsibilities for fraud detection and prevention.
-The accountant must also make inquiries about any actual, suspected, or alleged fraud and communicate any indications of fraud to the appropriate parties.
-Specific guidance is provided for each type of engagement, including the need for professional skepticism, risk assessment, and documentation.
-The article emphasizes the importance of maintaining professional skepticism and considering the fraud-risk triangle in all engagements.
Fraud is a serious concern that can have devastating consequences. With that in mind, there may be no better time than now for a quick refresher on the practitioner’s responsibilities relating to fraud in an assurance engagement. Remember: there is no substitute for the AICPA Professional Standards ; this discussion is not intended to cover all the requirements contained in the relevant sections of that authoritative guidance.
The accountant’s responsibilities relating to fraud depend on the type of engagement being performed. Our discussion will cover engagements covered by AICPA Statements on Standards for Accounting and Review Services (SSARSs) and AICPA Statements on Auditing Standards (SASs). Let’s begin with the SSARSs.
As with an audit of financial statements, when performing a preparation, compilation, or review engagement the accountant begins with engagement acceptance or continuance procedures. These include obtaining (usually via an engagement letter) the agreement of management, where management acknowledges and understands its responsibilities with respect to fraud. Management’s responsibilities include the prevention and detection of fraud, as well as the design, implementation, and maintenance of a system of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error unless the accountant decides to accept responsibility for such internal control.
FRAUD IN A PREPARATION OR COMPILATION ENGAGEMENT
When performing a preparation engagement, where the objective is to prepare financial statements pursuant to a specified financial reporting framework, the auditor’s main responsibility is the requirement to obtain management’s agreement that it acknowledges and understands its responsibility for preventing and detecting fraud. This is equally true in the case of a compilation engagement, where the objective is to apply accounting and financial reporting expertise to assist management in the presentation of the financial statements and to report in accordance with AR-C Section 80, Compilation Engagements, without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework.
In an audit engagement, the accountant is responsible for obtaining reasonable assurance that the financial statements are free of material misstatements, whether due to fraud or error. The auditor must maintain professional skepticism and consider the fraud-risk triangle, which includes incentives or pressure to commit fraud, opportunities to commit fraud, and rationalization of fraud.
In summary, accountants must be diligent in their efforts to detect and prevent fraud in all types of engagements. They must obtain management’s agreement on their responsibilities, make appropriate inquiries, communicate indications of fraud, and document their procedures and findings. Maintaining professional skepticism and considering the fraud-risk triangle are essential elements of fraud detection. By fulfilling their responsibilities, accountants can contribute to the prevention and detection of fraud, ultimately protecting the interests of their clients and the public.
