More good stuff for auditors – 3/9

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A few articles for CPAs:

  • Do group audit standards apply when there is only 1 auditor?
  • Pondering on how senior execs “go bad”
  • Link between gambling addiction and fraud
  • Steps by Big 4 to analyze ‘big data’ in audits

2/24 – Charles Hall at CPA-Scribo – Do the Group Audit Standards Apply When Only One Firm Audits Consolidated Financial Statements? – Short answer to the question: yes, they apply. Sorry if that is a shock to you.

My feeble attempt at an explanation why:  CPAs can no longer just blow off all those consolidated entities based on an overall materiality determination. We need to consider what risks are in each of those components. There might be something like messy derivatives lurking in the details that are actually material to the financials overall.

Check out the post for a longer and better explanation of the rules.

3/1 – Tracy Coenen at Fraud Files – When Upper-Level Executives Go Bad – Does something change in senior execs when they commit fraud or was there a severe character flaw all along? Article explores that question.

A senior level fraudster likely has some serious flaws that are otherwise visible: they are extremely materialistic, mistreat staff, generate high turnover, and accept any behavior as long as the numbers are “right.”

I’ve long wondered about how to separate a highly driven, demanding, results-focused, normally greedy executive from one who has those behaviors but is a fraudster. Article gives some insight how to tell the difference between a hard-charging exec driven for legitimate results versus crooked results.

2/22 – Tracy Coenen at Fraud Files – A Correlation Between Gambling and Fraud? – Ms. Coenen explains that gambling can become an addiction.

The frightening thing is a gambling addiction can be hidden in the workplace. In contrast, there is a good chance that someone strung out on drugs or at the out-of-control stage of alcoholism will show signs in the workplace. Gambling that drives a person to fraud could easily be invisible.

The lesson for senior leaders, auditors, legal staff, compliance, and supervisors? Ms. Coenen closes with:

… if management does see a sign or hear a report of an employee being a regular gambler, it is important to pay attention to this information and supervise the employee a little more closely.

3/7 – Michael Rapoport at Wall Street Journal – Auditing Firm’s Count on Technology for Backup / Big four pour money into cutting-edge tools to take over rote tasks, identify suspicious patterns; KPMG strikes deal with IBM – Article describes the Big 4 are moving towards using software that allows looking at 100% of transactions and applying high-end computer power, such as IBM’s Watson, to perform analytical review of an entire database.

If you are an auditor that has been around a while you will benefit from the incremental steps described in applying technology in the auto context.

I see small steps described in the article yet I’m still scratching my head on where there is a huge breakthrough. Accessing 100% of the database has been possible for many years with one of several specialized software. While that may be easier with new software and more powerful computers, there will still be heavy need for critical thinking to figure out what analytical you to reform and how to interpret results.

It would be well worth your time to read the article to see what’s going on in the Big 4 world.

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