Discussion Among the Engagement TeamDiscussion Among the Engagement Team

Discussion Among the Engagement Team

30 Members of the engagement team shall discuss the susceptibility of the entity’s financial report to material misstatement due to fraud.

31 In accordance with ASA 315, members of the engagement team are required to discuss the susceptibility of the entity to material misstatement of the financial report. Under paragraph 30 of this Auditing Standard, the auditor needs to place particular emphasis, within the discussion, on the susceptibility of the entity’s financial report to material misstatement due to fraud. The discussion ordinarily includes the engagement partner who uses professional judgement, and uses prior experience with the entity and knowledge of current developments to determine which other members of the engagement team are included in the discussion. Ordinarily, the discussion involves the key members of the engagement team. The discussion 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.

32 The engagement partner shall consider which matters are to be communicated to members of the engagement team not involved in the discussion.

33 All of the members of the engagement team do not necessarily need to be informed of all of the decisions reached in the discussion. For example, a member of the engagement team involved in the audit of a component of the entity may not need to know the decisions reached regarding another component of the entity.

34 The discussion occurs with a questioning mind setting aside any beliefs that the engagement team members may have that management and those charged with governance are honest and have integrity. The discussion ordinarily includes:

• An exchange of ideas among engagement team members about how and where they believe the entity’s financial report 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 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.