Chapter 2

Conflict of interest

SEC guiding principles not in book

Independence in factIndependence in appearance

Auditors are not independent if relationships –Create mutual or conflicting interests with client–Audit their own work–Act as management or employee of the client–Be an advocate for the client

Fraud Triangle

• Perceived Pressure• Perceived Opportunity• Ability to Rationalize

• This layout is similar to Appendix 1 in ISA 240

a bit of a switch to Internal Control

• Remember the COSO elements of Internal Control

• Remember the Control Procedures

COSO components of internal controls

1. Control environment Control environment2. Risk assessment3. Control procedures Control activities4. Information & communication Accounting function5. Monitoring

3. Control Procedures

Adequate segregation of dutiesProper authorization of transactions & activitiesAdequate documents & recordsPhysical controls over assets & records

Independent checks on performance

segregation of dutiessystem of authorizationindependent checks the Albrecht bookphysical safeguardsdocuments & records

Segregation of Duties

Must separate

Custody of Assets

Authorization of Transactions

Record-Keeping

a bit of a switch to Internal Control

• Perceived Pressure• Perceived Opportunity– COSO internal control framework• Control Environment• Risk Assessment• Control Activities (Procedures)• Accounting Function (info & communicate)• Monitoring

• Ability to Rationalize

• This layout is similar to Appendix 1 in ISA 240

a bit of a switch to Internal Control• Perceived Pressure• Perceived Opportunity

– COSO internal control framework• Control Environment• Risk Assessment• Control Activities (Procedures)

segregation of dutiessystem of authorizationindependent checks physical safeguardsdocuments & records

• Accounting Function (info & communicate)• Monitoring

• Ability to Rationalize

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