Discussion among the Engagement Team (ReDiscussion among the Engagement Team (Ref: Para. 16)

Discussion among the Engagement Team (Ref: Para. 16)

1. Discussing the susceptibility of the entity’s financial report to material misstatement due to fraud with the engagement team:

• Provides an opportunity for more experienced engagement team members to share their insights about how and where the financial report may be susceptible to material misstatement due to fraud.
• Enables the auditor to consider an appropriate response to such susceptibility and to determine which members of the engagement team will conduct certain audit procedures.
• Permits the auditor to determine how the results of audit procedures will be shared among the engagement team and how to deal with any allegations of fraud that may come to the auditor’s attention.

1. The discussion may include such matters as:

• An exchange of ideas among engagement team members about how and where they believe the entity’s financial report (including the individual financial statements and the disclosures) may be susceptible to material misstatement due to fraud, how management could perpetrate and conceal fraudulent financial reporting, and how assets of the entity could be misappropriated.
• A consideration of circumstances that might be indicative of earnings management and the practices that might be followed by management to manage earnings that could lead to fraudulent financial reporting.
• A consideration of the risk that management may attempt to present disclosures in a manner that may obscure a proper understanding of the matters disclosed (for example, by including too much immaterial information or by using unclear or ambiguous language).
• A consideration of the known external and internal factors affecting the entity that may create an incentive or pressure for management or others to commit fraud, provide the opportunity for fraud to be perpetrated, and indicate a culture or environment that enables management or others to rationalise committing fraud.
• A consideration of management’s involvement in overseeing employees with access to cash or other assets susceptible to misappropriation.
• A consideration of any unusual or unexplained changes in behaviour or lifestyle of management or employees which have come to the attention of the engagement team.
• An emphasis on the importance of maintaining a proper state of mind throughout the audit regarding the potential for material misstatement due to fraud.
• A consideration of the types of circumstances that, if encountered, might indicate the possibility of fraud.
• A consideration of how an element of unpredictability will be incorporated into the nature, timing and extent of the audit procedures to be performed.