Proficiency and Professional Judgment Documentation: the Independent Auditor’s Responsibility

Proficiency and Professional Judgment Documentation: the Independent 

Auditor’s Responsibility

Mohammed J. Masoud, CPA, CACM, CFE, CICA, MBA

The American Anti-Corruption Institute (AACI)

Invited paper presented at the

The Second Accounting and Auditing International Conference

Organized by

 The Palestine Association of Certified Public Accountant (PACPA)

Ramallah – Palestine

May 28-29, 2014

Abstract

This conference paper conducts a review of the published auditing literature with respect to the responsibility of the independent auditor[1] regarding the required level of proficiency she/he should possess in conducting a financial statements audit. It also reviews the independent auditor’s responsibility in documenting her/his professional judgments[2] reached for in a financial statements audit.  The objective of this paper is to address the challenges the independent auditor faces to comply with relevant International Standards on Auditing (ISAs); specifically the International Standard on Auditing 230:” Audit Documentation”. Further, this paper discusses the interrelationships between the independent auditor’s proficiency and professional judgment and their impact on audit effectiveness. We found that independent auditors are requested and expected to document in sufficient and proper details in the audit file (work papers) not only the audit judgments of significant matters, but also to demonstrate that the audit was planned, performed, and opined using the optimum mix and the cutting edge of knowledge, education, experience, rules, regulations, and the relevant auditing and accounting literature.

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[1] The terms auditor and independent auditor are used interchangeably throughout this conference paper.

[2] Professional judgment; audit judgment, professional audit judgment; and judgment are used interchangeably throughout this conference paper.

LINKS

The complete conference paper: https://drive.google.com/file/d/0B4sCwzCGinSwdC1xYmdYMjBDbXc/edit?usp=sharing

The PowerPoint presentation of the conference paper: https://drive.google.com/file/d/0B4sCwzCGinSwTUQ0YjN2UGZtUGs/edit?usp=sharing

To prevent fraud, offer a hotline, train employees on fraud prevention, report says

To prevent fraud, offer a hotline, train employees on fraud prevention, report says


"For all geographic regions, corruption and billing schemes comprised more than 50% of the frauds reported to the ACFE, making those types of schemes a worldwide risk.

The ACFE survey also found that:

• Small businesses are particularly vulnerable to fraud because they often have fewer resources and less effective fraud controls than larger organizations.
• In 49% of cases, the victim organization had recovered no losses from fraud at the time of the survey. Just 16% reported recovery of 100% of losses.
• As in 2010, accounting was the most common area of employment for perpetrators, representing 22% of cases. Operations ranked second at 17%.
• Behavioral red flags most commonly associated with perpetrators were: living beyond their means (36%) and financial difficulties (27%)."

As the report was issued buy the ACFE on May 10, 2012, I will read it and provide my insights at a later time this month. I would like to assert the fact that is clear enough for us as experts in fighting fraud and corruption: The most effective fraud prevention and detection is Whistle Blowing ( Tips and Hotline).

Birzeit Consulting Partners in the 4th Forensic Conference For Africa - Accra - Ghana

Birzeit Consulting will be participating as a partner in the 4th Forensic Conference Fro Africa titled " Fighting Fraud  / Corruption and Money Laundering in Africa Using Investigative Accounting Skills to enhance Operating efficiency"  in Accra - Ghana during the period  December 5 - 9, 2011. Birzeit Consulting will be participating by several of its associates and experts coming from the United States of America, the United Kingdom, and Jordan. The chief international speaker at the conference would be Mr. Mohammed J. Masoud, CPA, CFE, CICA, MBA, co-founder and managing director of Birzeit Consulting. He is an adjunct professor at the Arab American University, serves as an ACFE advisory board member, and a board member of the Arab Accountants Union (AAU) in Egypt.   Participants will be from several African, Middle Eastern, and European countries.
The guest of honor of the conference would be Mr. Adu Anane Antwi, BSc, LLB, MBA, CA, Director General of the Securities & Exchange Commission-Ghana.
The conference detailed brochure and its condensed one can be found when you click on each of them. For registration, please contact O'Sullivan Associates Ltd, our partner in Kenya. 

Passive Fraud and Corruption

What differentiates fraud from error is the intent underlying the one's act. Therefore, an error is an error if and only if one's act is not accompanied with an intent to defraud. But what differentiates fraud from passive fraud?

"Passive fraud and corruption" is a term I use to describe individuals or entities that are negligent or grossly negligent knowingly or unknowingly while dealing with the environment in which fraud and corruption occur. For example, when a senior executive collude with  the CFO to defraud their company and they do, we call this fraud. However, what if the board of directors of this defrauded company does not conduct its acts in accordance with "duty of care"? Imagine if the board members do not have sufficient and appropriate financial expertise and are not aware about what fraud risks are. I call this board of directors passively corrupted and fraudsters. They participated indirectly in creating opportunities for others inside or outside the entity to use such environment that lacks the minimum required tone at the top.

الحكم المهني للمدقق

كثيرا ما أستمع في جلسات مهنية محلية ودولية مصطلح "الحكم المهني للمدقق" عند الحديث عن أعمال التدقيق لمدقق الحسابات المستقل. وقد لاحظت في أحيان كثيرة بأن هذا المصطلح يستخدم في غير محله ، وأحيانا دون وضوح تام حول طبيعة هذا المصطلح، الغرض من إستخدامه، شروط إستخدامه وطبيعة توثيقه في أوراق العمل. بالإضافة إلى الأثر الجوهري على نوعية أعمال التدقيق والنتائج المترتبة على ذلك.

Email me for the complete article. 

Association of Certified Fraud Examiners

The ACFE's 2010 Report to the Nations on Occupational Fraud and Abuse is based on data compiled from a study of 1,843 cases of occupational fraud that occurred worldwide between January 2008 and December 2009. All information was provided by the Certified Fraud Examiners (CFEs) who investigated those cases. The fraud cases in our study came from 106 nations — with more than 40% of cases occurring in countries outside the United States — providing a truly global view into the plague of occupational fraud.
Since the inception of the Report to the Nation more than a decade ago, we have released five updated editions — in 2002, 2004, 2006, 2008 and the current version in 2010. Like the first Report, each subsequent edition has been based on detailed case information provided by Certified Fraud Examiners (CFEs). With each new edition of the Report, we add to and modify the questions we ask of our survey participants in order to enhance the quality of the data we collect. This evolution of the Report to the Nation has enabled us to continue to draw more meaningful information from the experiences of CFEs and the frauds they encounter.
In our 2010 Report, we have, for the first time ever, widened our study to include cases from countries outside the United States. This expansion allows us to more fully explore the truly global nature of occupational fraud and provides an enhanced view into the severity and impact of these crimes. Additionally, we are able to compare the anti-fraud measures taken by organizations worldwide in order to give fraud fighters everywhere the most applicable and useful information to help them in their fraud prevention and detection efforts.
Excerpt from the Report's "Letter from the President," by James D. Ratley, CFE:
"On behalf of the ACFE, and in honor of its founder, Dr. Joseph T. Wells, CFE, CPA, I am pleased to present the 2010 Report to the Nations on Occupational Fraud and Abuse to practitioners, business and government organizations, academics, the media and the general public throughout the world. The information contained in this Report will be invaluable to those who seek to deter, detect, prevent or simply understand the global economic impact of occupational fraud."

To Whom It May Concern: Report to the Nations on Occupational FRAUD and Abuse

The Association of Certified Fraud Examiners issued lately their report titled " Report to the Nations on Occupational FRAUD and Abuse". The report is based on data compiled from a study of 1,843 cases of occupational fraud that occurred worldwide between January 2008 and December 2009.

All information was provided by Certified Fraud Examiners (CFEs) who investigated those cases. The fraud cases in the study came from 106 nations - with more than 40% of cases occuring in countries outside the United States- providing a truly global view into the plague of occupational fraud.

The report states that one-fourth of the frauds in the report caused at least $ 1 million in losses.

Though not surprising for the CFEs community, the initial detection of occupational frauds came from the following as per the 2010 Report to the Nations on Occupational FRAUD and Abuse page 16:

Tip: 40.2%

Management Review: 15.4%

Internal Audit: 13.9%

By Accident: 8.3%
Account Reconciliation: 6.1%
Document Examination: 5.2%

External Audit: 4.6%

Surveillance/ Monitoring: 2.6%
Notified by Police: 1.8%
Confession: 1%
IT Controls: 0.8%