When the auditor encounters circumstances that may indicate that there is a material misstatement in the financial statements resulting from fraud or error, the auditor should perform procedures to determine whether the financial statements are materially misstated. During the course of the audit, the auditor may encounter circumstances that indicate that the financial statements may contain a material misstatement resulting from fraud or error.
When the auditor encounters such circumstances, the nature, timing and extent of the procedures to be performed depends on the auditor’s judgment as to the type of fraud or error indicated, the likelihood of its occurrence, and the likelihood that a particular type of fraud or error could have a material effect on the financial statements. Ordinarily, the auditor is able to perform sufficient procedures to confirm or dispel a suspicion that the financial statements are materially misstated resulting from fraud or error. If not, the auditor considers the effect on the auditor’s report.
The auditor cannot assume that an instance of fraud or error is an isolated occurrence and therefore, before the conclusion of the audit, the auditor considers whether the assessment of the components of audit risk made during the planning of the audit may need to be revised and whether the nature, timing and extent of the auditor’s other procedures may need to be reconsidered.
For example, the auditor would consider:
♦ The nature, timing and extent of substantive procedures.
♦ The assessment of the effectiveness of internal controls if control risk was assessed below high.
♦ The assignment of audit team members that may be appropriate in the circumstances.
♦ The nature, timing and extent of substantive procedures.
♦ The assessment of the effectiveness of internal controls if control risk was assessed below high.
♦ The assignment of audit team members that may be appropriate in the circumstances.