| Summary: | 碩士 === 國立臺灣大學 === 會計學研究所 === 95 === Frauds are often mentioned in the news today, and most involve fraudulent financial statements and asset misappropriations. These frauds had resulted in instability of stock markets development and caused significant losses to immense stakeholders. Amidst these, the auditing profession also suffered from reputation losses, as well as faced with increased exposure to litigation and greater scrutiny. As such, this research used Procomp Case as an example to examine how auditors can manage fraud risks through complying with the guidelines relating to identification and assessment of the risks of material misstatement due to fraud (including considerations of unusual or unexpected relationships and fraud risk factors), and determination of responses to address the assessed fraud risks as specified in local Statements of Auditing Standards No. 43 “The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements”, in order to increase audit quality and reduce audit risks.
Based on the considerations of identified Procomp Case’s unusual or unexpected relationships and fraud risk factors, the following overall responses are recommended:
1. Exercise increased professional skepticism and involve more general considerations apart from the planned specific procedures throughout the audit.
2. Appropriate assignment and supervision of personnel involved in the audit engagement, particularly the increased involvement of the audit engagement partner taking a lead throughout the audit.
3. Test the design and operating effectiveness of internal controls.
4. Consider the accounting policies and estimates used by the entity for biases.
5. Incorporate an element of unpredictability in the selection of the nature, timing, and extent of audit procedures.
6. Complete all necessary audit procedures and obtain sufficient appropriate evidence to support the audit report by the report date.
7. Refuse to accept unreasonable reporting deadlines.
Based on the considerations of identified Procomp Case’s unusual or unexpected relationships and fraud risk factors, the following audit procedures responses at the assertion level are recommended:
1. Make confirmations with all corresponding financial institutions and ensure the direct receipt of all returned confirmations by auditors.
2. Test the business rationale of significant cash movements that are outside the normal course of business or that appear to be unusual.
3. Obtain an understanding of the entity’s major suppliers and customers.
4. Visit the entity’s major suppliers and customers.
5. Test the appropriateness of accounting for significant disposals of accounts receivable.
6. Evaluate the provision for doubtful accounts.
7. Perform tests of inventory counts.
8. Evaluate the provision for inventory valuation.
To response to risks of management override of controls, the following audit procedures are recommended:
1. Test the appropriateness of journal entries.
2. Review accounting estimates for management biases.
3. Understand the business rationale of significant transactions that are outside the normal course of business or that appear to be unusual.
When performing the additional audit procedures recommended above, the auditors need to constantly maintain an increased attitude of professional skepticism and exercise professional judgment at all stages of the audit to ensure the audit objectives are achieved. Nevertheless, due to the inherent limitations of an audit in the context of fraud, there is an unavoidable risk that the auditors may not detect some material misstatements of the financial statements even though they have properly planned and performed the audit in accordance with Statements of Auditing Standards.
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