PENGAUDITAN 1

Chapter 9 :
Fraud Auditing
Present By :
M.Riduan Abdillah SE,M.Si, Akt, CA
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 1
 Types of Fraud
Fraudulent financial reporting

Misappropriation of assets

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 The Fraud Triangle
Incentives/Pressures

Attitudes/Rationalizatio
Opportunities
n
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 3
 Examples of Risk Factors
for Fraudulent Reporting
Incentives/Pressures:
Financial stability or profitability is threatened by
economic, industry, or entity operating conditions
Excessive pressure exists for management to
meet debt requirements
Opportunities:
There is ineffective oversight over financial reporting
Attitudes/Rationalization:
Management has a practice of making
overly aggressive or unrealistic forecasts
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 4
 Examples of Risk Factors
for Misappropriation of Assets
Incentives/Pressures:
Adverse relationships between management and
employees
motivate employees to misappropriate assets
Opportunities:
There is a presence of large amounts of cash on hand or
inventory items
There is an inadequate internal control over assets

Attitudes/Rationalization:
There is a disregard for internal controls
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 5
 Assessing the Risk of Fraud

SAS 99 provides guidance to auditors

in assessing the risk of fraud.

SAS 1 states that, in exercising

professional
skepticism, an auditor “neither assumes
that
management is dishonest nor assumes
unquestioned honesty.”

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 6

 Sources of Information Gathered
to Assess Fraud Risks
Communication Inquiries of Risk Analytical Other
among audit manageme factor procedur informatio
team nt s es n

Identified risks of material misstatements due to

fraud
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 7
 Documenting Fraud
Assessment
Discussion
Procedures
Specific risks
Reasons
Other conditions
Results
Nature of communications
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 8
 Organizational Factors
Contributing to Risk of Fraud
4
Collusion between
3
8
employees and 3
third parties 1
3
3
Inadequate
5
9
internal 5
controls 8
9
3
Management
3
1
override of 3
internal controls 6
6
20 19 19
03 98 94
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 9
 Organizational Factors
Contributing to Risk of Fraud
1
Collusion between
1
5
employees and 2
management 9
3
1
Lack of control
1
2
over management
by directors 1
6
1
Ineffective or
nonexistent ethics or 0
compliance program 8
7
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03 98 94
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 10
 Rates of Fraud Occurrence
4
Theft of assets 2
9
2
4
Check fraud 2
0
6
3
Expense account 1
abuse 6
3
2
Credit card fraud 1
0
3
1
Payroll fraud 2
20 19 3
03 98
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 11
 Rates of Fraud Occurrence
1
Conflict of interest 2
9
1
Inventory theft 1
1
Kickbacks 9
6
Financial reporting
fraud 7
3

20 19
03 98
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 12
 Specific Fraud Risk Areas

Revenue and accounts receivable fraud risks

Inventory fraud risks

Purchases and accounts payable fraud risks

Other areas of fraud risk

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 13

 Corporate Governance Oversight
to Reduce Fraud Risks
1. Culture of honesty and high
ethics

2. Management's responsibility
to evaluate risks of fraud

3. Audit committee oversight

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 14

 Responding to the Risk of
Fraud
Change the overall conduct of the audit
to respond to identified fraud risks.

Design and perform audit procedures

to address identified risks.

Design and perform procedures to

address the risk of management
override of controls.

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 15

 Methods of Uncovering Fraud
(Percentages) 2003 1998 1994
Internal controls 77 51 52
Internal audit 65 43 47
Notification by employee 63 58 51
Accident 54 37 28
Anonymous tip 41 35 26
Notification by customer 34 41 34
Notification by regulatory or 19 16 8
law enforcement agency
Notification by vendor 16 11 15
External audit 12 4 5
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 16
 Responding to Misstatements That
May Be the Result of Fraud
When fraud is suspected, the auditor
gathers
additional information to determine
Whether fraud actually exists.

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 17

 Types of Inquiry Techniques
Informational inquiry

Assessment inquiry

Interrogative inquiry

Evaluating responses

Listening techniques

Observing behavioral cues

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 18

 End of Chapter 9

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 11 - 19