1.Errors; are unintentional mistakes. They occur at any stage in a business transaction processing transaction occurrence, documentation, record of prime entry, double entry record summarising process and financial statement production. Errors can be of any kind; mathematical or clerical, or in application of accounting principles. There can also be mistakes of commission or omission or interpretation of facts.
Irregularities; may mean that proper accounting records have not been kept. They may indicate that some internal controls are not effective and that the auditor cannot place reliance of those internal controls.
Fraud; involves use of deception to obtain an unjust or illegal financial advantage. Intentional misstatements in or omissions of amounts or disclosures from, an entity’s accounting records a financial statements. Illegal act is an act contrary to law. It may be committed intentionally or inadvertently.
2. In general an auditor is a watchdog not a bloodhound and tests designed specifically and uniquely to detect irregularities will be performed only when the auditor’s suspicion is aroused.
3.The auditor should report to:
The auditor should communicate factual findings to management as soon as practicable if:
- He suspects fraud may exist, even if the potential effect on the financial statements would be immaterial;
- Fraud or significant error is actually found to exist. The auditor should consider the appropriate level of management to report tom
- To users of the auditor’s report on the financial statements
If the auditor concludes that the fraud or error has significant effect on the financial statements and has not been properly reflected or corrected in the financial statements, the auditor should express a qualified or an adverse opinion. If the auditor is precluded from obtaining sufficient appropriate audit evidence to evaluate whether fraud or error that may be material to the financial statements, the auditor should express a qualified or a disclaimer of opinion on the basis of a limitation on the scope of the audit.
- To regulatory and enforcement authorities
Rules of confidentiality preclude the auditor from disclosing fraud or error to 3rd parties. However, in certain circumstances the law gives the auditor a duty to disclose such. The auditor may need to seek legal advice in such circumstances.
- Withdrawal from the engagement
The auditor may conclude that withdrawal from the engagement is necessary when the entity does not take the remedial action regarding fraud that the.