High-profile frauds from recent years have caused significant changes to the obligations that auditors face when considering whether particular errors or acts fall within the parameters of fraud.  This includes meeting the updated standards of fraud detection, and the increased availability of guidance and direction offered online regarding fraud awareness and detection, which has been published by organizations such as the Chartered Professional Accountants of Canada (CPA) and the Institute of Internal Auditors (IIA).

Such modifications include those set out in Canadian Auditing Standards (henceforth referred to as CAS), which are effective for audits of financial statements for periods ending on or after December 14, 2010.  Specifically, an audit in accordance with CAS must include acquiring reasonable assurance that the financial statements taken as a whole are free of material misstatement–whether caused by fraud or error.

Predictably, one of the most ominous challenges is that the risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting one caused by error. This is because misstatements attributable to fraud most likely include sophisticated schemes that are designed to conceal it.

The times of economic boom, and similarly, the years of economic uncertainty and unpredictability, have given rise to a unique set of challenges for auditors, management, boards and audit committees.  In its April 2011 “Report on the 2010 Inspections of the Quality of Audits Conducted by Public Accounting Firms”, the Canadian Public Accountability Board (CPAB) noted that “…to respond to this [increased potential for fraud], auditors should exercise appropriate professional skepticism in the performance of audits. This requires the auditor to obtain an understanding of the business, industry and related risks (including fraud risks related to revenue recognition) and to ensure the audit is responsive to those risks. This means more than just completing a fraud checklist. Engagement teams should ensure fraud risks identified at the brainstorming stage are adequately addressed in both the planning and in the execution of the audit”.

The CPAB inspections further note that “…due to its characteristics, the auditor’s attitude of professional skepticism is particularly important when considering the risks of misstatement due to fraud”.  Notwithstanding, CPAB “…noted a number of examples where the audit procedures could have been improved through the application of greater professional skepticism…” as well as “…several examples of over reliance on management representations.”  Thus, it is evident that an effective auditor knows precisely what it is that they are looking for, in terms of ‘red flags’ or potential indicators of fraud, fully competent and comfortable in his or her ability to ask the “tough questions” when interviewing management. Fraud awareness training fully equips auditors with the knowledge and skill required to navigate their way through these sensitive, though critical moments.

CPA Canada requires the auditor and audit team members to discuss the susceptibility of the organization to material misstatements arising from both fraud and error. These are commonly referred to as “fraud brainstorm discussions”.

nagel + associates works closely with audit teams to help them prepare and carry out fraud brainstorm discussions, including bringing practical experience from past investigations to the table in order to facilitate an increase in the level of professional skepticism from auditors, and to help auditors acquire the requisite skills to recognize the “red flags” and indicators of fraud.

Our professional staff can also provide auditors with the necessary tools to understand how frauds are perpetrated and in due course concealed, through our customized fraud awareness training sessions. It is further reinforced through hands-on case studies of fraud that could be occurring within the organizations that retain their services.

Anti-fraud training from nagel + associates can be delivered live, online, or via video conferencing to accommodate multiple departments and/or office locations simultaneously. In order to prioritize the needs and wishes of each organization that participates, the content and focus (broad or specific) of the training sessions as it relates to fraud will be determined solely by them.

Click on the links below to see upcoming training sessions offered by nagel + associates, or to request a custom training course:

To determine whether your organization may benefit from anti-fraud training, click all of the following that apply: