Not All Are Fraud Audits

BY CHARLES CHAZEN

Not All Are Fraud Audits

“...And Nothing But the Truth: Uncovering Fraudulent Disclosures” ( JofA, July01, page 47), contains interesting recommendations—but to be used under what circumstances?

The article leads one to believe the recommended procedures should be added to every audit program as standard steps. I disagree.

SAS no. 82, Consideration of Fraud in a Financial Statement Audit, makes clear that the auditor has broad responsibilities in detection of fraud. However, the statement does not require every audit engagement to become a fraud audit. Audit procedures may lead to some of the steps recommended in the article, but without a “red flag” requiring the auditor to expand or modify his or her audit procedures, I believe the following suggestions represent overkill:

Check public records at the federal or state level to look for undisclosed liabilities.

Interview recently departed employees and ask if they had any suspicion of management fraud.

Review corporate records maintained by the state to find whether a client’s officers are also listed as officers of another corporation, in search of related-party transactions.

Review published material covering the client or its key officers, looking for possible conflicts or controversy.

Ask for unrestricted access to the client’s files so the auditor can go on a fishing expedition.

Skepticism is the auditor’s middle name, but that doesn’t mean that every audit should become an adversarial procedure.

Charles Chazen, CPA
Los Angeles

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

QUIZ

News quiz: Scam email plagues tax professionals—again

Even as the IRS reported on success in reducing tax return identity theft in the 2016 season, the Service also warned tax professionals about yet another email phishing scam. See how much you know about recent news with this short quiz.