Fraud Considerations in the Audit of Financial Statements

The Accounting Research Institute thanks Mr Ken Pushpanathan, President of the Malaysian Institute of Certified Public Accountants (MICPA)who presented a lecture for the students of the Master in Forensic Accounting and financial criminology program.

The lecture topic was related to Fraud Considerations in the Audit of Financial Statements. Essentially, an auditor is responsible for planning and performing the audit to obtain reasonable assurance about whether the financial statements taken as a whole are free of material misstatement, whether caused by error or by fraud. Nevertheless it was further stressed that the fact that an audit is carried out may act as a deterrent, but the auditor is not and cannot be held responsible for the prevention of fraud and error. The International Auditing Standard 240 (IAS 240)specifically stipulates that an auditor in an audit of financial statements must ensure that he or she

(i) gathers information from management and others within the organization to identify and assess risks of fraud, (ii) develops specific audit procedures to address these identified risks and (iii) performs mandatory procedures to address the risk of management override of controls. Mr Ken Puspanathan further shared his experiences as an auditor and elaborated how in reality, financial frauds are committed in various forms. As such, auditors must be creative and proactive in their audit planning so as to maximise the probability of "catching the pepetrators"