Enhancing Auditors' Approach to Fraud: Integrating Forensic Techniques

Thursday, June 27, 2024 Print Email

Addressing the risk of fraud in financial audits is increasingly complex. The AICPA Auditing Standards Board (ASB) has conducted interviews with forensic professionals to gather insights on improving fraud detection during audits.

Current Guidance and Professional Skepticism

AU-C Section 240 outlines the need for professional skepticism, requiring auditors to maintain a questioning attitude throughout the audit. Forensic professionals recommend that auditors:

  • Accept that anyone can commit fraud.
  • Avoid overreliance on past practices.
  • Maintain curiosity and adopt a "show me" strategy, focusing on evidence over explanations.

Enhancing Engagement Team Discussions

AU-C Section 315 requires engagement teams to discuss fraud risk. Suggestions include:

  • Encouraging attendance from all team members, including specialists.
  • Emphasizing unpredictability in audit procedures.
  • Leveraging data analytics for deeper insights.
  • Continuously brainstorming about fraud risks throughout the audit.

Effective Inquiries and Discussions

Forensic experts suggest reframing fraud inquiries as broader discussions, increasing their frequency, and engaging face-to-face to better gauge responses. They also recommend:

  • Inquiring across various levels within the entity.
  • Extending inquiries to external parties.
  • Using supporting evidence to challenge client explanations.
  • Conducting "pressure tests" to understand internal pressures on employees.

Additional Forensic Insights

Forensic professionals also advise:

  • Examining payroll and credit card statements for anomalies.
  • Assessing internal controls and their effectiveness.
  • Understanding the client’s whistleblower hotline and its outcomes.

By integrating these forensic techniques, auditors can enhance their ability to detect and respond to fraud, ultimately strengthening the integrity and reliability of financial audits.

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