Audit. Fraud and mistakes (most important)

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Audit. Fraud and mistakes (most important)

Lecture notes, cheat sheets

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26. FRAUD AND ERRORS

The definition, classification of errors, as well as the actions of the auditor when they are detected, are prescribed in rule (standard) No. 13 "The auditor's obligations to consider errors and dishonest actions during the audit", which was put into effect by Decree of the Government of the Russian Federation of October 7, 2004 No. 532. According to this standard bug - unintentional distortion in the financial (accounting) statements, including failure to reflect any numerical indicator or failure to disclose any information. Under dishonest actions means intentional actions committed by one or more persons from among the representatives of the owner, management and employees of the audited entity or third parties through illegal actions (inaction) to obtain illegal benefits. Allocate two types of intentional distortionsarising from fraud considered during the audit:

1) distortions arising in the process of dishonest preparation of financial (accounting) statements;

2) misstatements arising from misappropriation of assets.

Fraudulent financial reporting implies distortion or non-reflection of numerical indicators or non-disclosure of information in financial (accounting) statements in order to mislead users of financial (accounting) statements. The following actions are considered unfair preparation of financial (accounting) statements:

1) falsification, change of accounting records and documents on the basis of which financial statements are prepared;

2) intentional incorrect reflection of events, business transactions or other important information in the financial (accounting) statements or their deliberate exclusion from these statements;

3) intentional violation of the application of accounting principles.

Error differs from dishonest action in the absence of intent underlying the action that led to the distortion of the financial (accounting) statements. Unlike error, fraud is intentional and usually involves the deliberate concealment of facts. While the auditor can determine the potential for fraud, it is difficult if not impossible for the auditor to determine intent, especially in terms of the subjective judgment of the entity's management.

Both intentional and unintentional misrepresentation of financial statements may be insignificant or significant for the audited economic entity (i.e., affecting the reliability of its financial statements to such a strong extent that a qualified user of its financial statements can draw erroneous conclusions based on such statements or accept wrong decisions).

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