Assignment 2 Discussion On Misstated Financial Statements

Assignment 2 Discussionmisstated Financial Statementsas The Partner

Research an auditor's responsibilities using your textbook, the Argosy University online library resources, and the Internet. Respond to the following: What are your responsibilities to detect fraud while performing a financial statement audit? (Do not discuss specific audit procedures, only the responsibilities.) What is your responsibility to report errors and fraud as detected to management, the board of directors, and parties outside the entity? By the due date assigned respond to the discussion questions. Submit your response to the Discussion Area. Use the same Discussion Area to comment on your classmates' submissions and continue the discussion until through the end of the module. Comment on how your classmates would address differing views. Grading Criteria Maximum Points Quality of initial posting, including fulfillment of assignment instructions 16 Quality of responses to classmates 12 Frequency of responses to classmates 4 Reference to supporting readings and other materials 4 Language and grammar 4 Total: 40

Paper For Above instruction

Introduction

Auditors play a crucial role in maintaining the integrity and transparency of financial reporting. Their responsibilities extend beyond mere compliance with auditing standards to include a proactive stance in detecting and reporting fraud and errors that could materially impact financial statements. As auditors of AV Imports and Exports, understanding and executing these responsibilities diligently ensures the reliability of the financial information conveyed to stakeholders, especially considering recent transactions post-year-end that may influence the financial statements under review.

Responsibilities to Detect Fraud

The fundamental responsibility of auditors concerning fraud detection is rooted in the requirement to plan and perform the audit with professional skepticism. According to SAS No. 122, auditors are required to obtain reasonable assurance that the financial statements are free of material misstatement, whether caused by error or fraud (AICPA, 2022). This involves designing and implementing audit procedures that are appropriate given the company’s risk environment (Arens et al., 2020). While auditors cannot guarantee the detection of all instances of fraud, they are responsible for exercising due professional care to identify indicators of potential fraud and evaluate the risk factors associated with it (International Auditing and Assurance Standards Board [IAASB], 2020).

Auditors must remain alert to various red flags such as inconsistencies in financial data, management overriding controls, or unusual transactions, especially those occurring just after year-end that might suggest fictitious or manipulated entries (Peirson & Brown, 2019). Their responsibilities include assessing the risk of material misstatement due to fraud and incorporating targeted procedures to address these risks, including inquiries of management and personnel, analytical procedures, and examination of journal entries (IAASB, 2020).

Reporting Responsibilities for Errors and Fraud

Once fraud or material errors are identified, auditors have a clear responsibility to communicate their findings appropriately. According to SAS No. 99, auditors must discuss their findings with management and those charged with governance, including the audit committee, and evaluate the implications for the financial statements (AICPA, 2022). If fraud or errors are identified that significantly affect the financial statements, auditors are required to assess whether these items need to be reported outside the entity.

In cases where management fails to take corrective action or the fraud involves senior management, auditors may have a statutory obligation or professional duty to report to external authorities or regulatory agencies (Hammersley et al., 2019). The auditor must consider the severity and pervasiveness of the fraud or error, the potential harm to stakeholders, and legal requirements when determining whether to escalate such findings (Peirson & Brown, 2019). Documentation of all discussions, findings, and communications is essential to demonstrate compliance with professional standards and legal obligations.

Conclusion

In summary, auditors bear a significant responsibility in detecting and reporting fraud to uphold the integrity of financial reporting. While they are not guarantors of detecting all fraudulent activity, they must exercise professional skepticism, plan and perform appropriate audit procedures, and communicate their findings effectively. Ensuring diligent detection and timely reporting helps protect stakeholders’ interests and maintains trust in financial markets.

References

• Arens, A. A., Elder, R. J., & Beasley, M. S. (2020). Auditing and Assurance Services (16th ed.). Pearson.
• Hammersley, J. S., Myers, L., & Pereira, R. (2019). Auditing & Assurance Services: An Integrated Approach (7th ed.). McGraw-Hill Education.
• International Auditing and Assurance Standards Board (IAASB). (2020). International Standards on Auditing (ISA) 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements.
• Peirson, G., & Brown, P. (2019). Auditing: A Risk-Based Approach (14th ed.). Pearson.
• American Institute of CPAs (AICPA). (2022). Statement on Auditing Standards (SAS) No. 122: Generally Accepted Auditing Standards; SAS No. 99: Consideration of Fraud in a Financial Statement Audit.