Client Substantiation File: Examples (fraud and using an expert)

Transcript of a video of Stuart Cormack describing two sections in our Client Substantiation File on fraud and using an expert.

Title: Client Substantiation File: Examples: Fraud and using an expert

In this video, I’m going to take you through some examples of what else has been included in the Client Substantiation File. I’ll also talk about why your auditor asks for this information. This helps to make the audit process more transparent and helps you understand why your auditor often asks for the same information in a later year or why they ask for information that they had not previously needed.

The first one is fraud. Your auditor is concerned that the financial statements could be misstated as a result of fraud, this is different from misstatements that may result from errors made.

As part of our risk assessment procedures we need to make enquiries with management and governors around fraud that may have taken place and any suspected or alleged fraud. This is a specific requirement in the auditing standards. Thus we have questionnaires that we want completed for governors, internal audit and management

These questionnaires will help us understand how the different levels in your organisation carry out their responsibility towards fraud and if any fraud has been identified at your organisation during the year. The use of these questionnaires is not intended to prevent any discussion in meetings, but they help us get an initial understanding of how fraud is dealt with and then identify what else should be followed up or discussed as the audit progresses.

Next, is using the work of an expert.

During the year you may have used a management expert to help you prepare certain amounts that are included in your financial statements.

We as the auditors often want to use this work as part of our audit procedures and when doing so, the auditing standards require us to perform specific procedures on this. This would include us doing things like:

  • looking at the objectivity, skills, competence and the qualifications & experience of the expert;
  • asking the expert to provide us with specific information and requesting documentation from them; and
  • meeting with the expert in person for further discussions and to obtain clarity on specific issues.

It is also important to remember that management has the responsibility to ensure that the expert is provided with the correct data and information for them to perform their work.

One last thing that is important to remember if you engage an expert is that it is important that you continue to take ownership of the process as the figures determined by the expert will be included in the financial statements of your organisation. You must also ensure that your expert understands your requirements and keeps adequate records of their work. Your auditor may have important questions on the process and may need further explanations from the expert.

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