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John recently noted that the PCAOB added a “Fraud Risk Resources” page to its website, which is intended to assist auditors in complying with their obligations to consider fraud during the course of an audit, while also providing useful information for audit committees in understanding their obligations. The Center for Audit Quality (CAQ) has also made resources available on this topic with its new publication “The Role of the Auditor: Assessing and Responding to Fraud Risk.” The CAQ notes:

Shifts in the economy, geopolitical landscape, and technological developments have created an environment in which companies are potentially more vulnerable to fraud. In recent years, as major corporate failures and scandals continue to be in the spotlight, fraud has become a growing area of focus. Regulators, investors, and other interested parties expect auditors to remain vigilant and to think critically about fraud.

The mitigation of fraud risk is most effective when all participants of the financial reporting ecosystem fulfill their roles in deterring and detecting fraud. Auditors, although often the last line of defense due to the scope and timing of their engagements, are among the many stakeholders whose influence and responsibilities have a significant impact on fraud deterrence and detection.

Auditors should continually strive to enhance their professional skepticism to effectively assess and respond to fraud risks, including considering when it may be important to elevate the basic level of skepticism that is applied throughout the process of any audit and being cognizant of biases that can impede professional skepticism.

The auditor’s fraud risk assessment is an iterative process that occurs throughout the audit and is a critical element of planning and performing an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or by fraud. Auditors may consider the following as they plan and perform their fraud risk assessment and design procedures to address identified fraud risks…

This publication provides insights into practices, tools, and considerations that can help auditors, especially those with less experience, enhance their professional skepticism and overall approach to assessing and responding to the risks of material misstatement resulting from fraud during the audit. It also provides clarity and understanding of the auditor’s current role and responsibilities related to fraud, which may provide insights for those who are involved in evaluating and using financial reporting information as well as for policymakers and regulators.

As with the PCAOB’s resources on fraud risk, this CAQ publication can be a useful resource for counsel and the audit committee to better understand the auditor’s role in assessing and responding to fraud risk.

– Dave Lynn