Section APPENDIX 3 - ASA 240 - The Auditor’s Responsibility to Consider Fraud in an Audit of a Financial Report - April 2006 - APPENDIX 3

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APPENDIX 3 EXAMPLES OF CIRCUMSTANCES THAT MAY INDICATE THE POSSIBILITY OF FRAUD

The following are examples of circumstances that may indicate the possibility that the financial report may contain a material misstatement resulting from fraud.
Discrepancies in the accounting records, including the following:

Transactions that are not recorded in a complete or timely manner or are improperly recorded as to amount, accounting period, classification, or entity policy.
Unsupported or unauthorised balances or transactions.
Last-minute adjustments that significantly affect financial results.
Evidence of employees’ access to systems and records inconsistent with that necessary to perform their authorised duties.
Tips or complaints to the auditor about alleged fraud.

Conflicting or missing evidence, including the following:
Missing documents.
Documents that appear to have been altered.
Unavailability of other than photocopied or electronically transmitted documents when documents in original form are expected to exist.
Significant unexplained items on reconciliations.
Unusual balance sheet changes, or changes in trends or important financial report ratios or relationships, for example receivables growing faster than revenues.
Inconsistent, vague, or implausible responses from management or employees arising from enquiries or analytical procedures.
Unusual discrepancies between the entity’s records and confirmation replies.
Large numbers of credit entries and other adjustments made to accounts receivable records.
Unexplained or inadequately explained differences between the accounts receivable sub-ledger and the control account, or between the customer statements and the accounts receivable sub-ledger.
Missing or non-existent cancelled cheques in circumstances where cancelled cheques are ordinarily returned to the entity with the bank statement.
Missing inventory or physical assets of significant magnitude.
Unavailable or missing electronic evidence, inconsistent with the entity’s record retention practices or policies.
Fewer responses to confirmations than anticipated or a greater number of responses than anticipated.