Question

• What is the responsibilities of management for errors, omissions, material fraud, illegal acts, and provide examples.

Answer 1

Solution:-

1.it is the primary responsibility of the management for prevention and detection of frauds and errors .Auditor responsibility is to express an opinion on the financial statements whether they are materially misstated or not.

2. Error is an unintentionally mistake.

Example of error:- actual collection from debtors is $6000, whereas it is entered in the books as $60,000.

Example of ommission :- check received from a customer is deposited in the bank but not entered in the books of accounts.

Responsibility :- in both cases above, auditor responsibility is to identify whether those errors and ommission materially effect the financial statements. If they are material , he has to report to the management and ensure that they are rectified.

3. Example of material fraud :- Amount received from a customer is misappripriated and the Amount received from another customer is applied against balance of the customer whose amount is misappropriated.(Teaming and leading)

4. Example of illegal Act.:- creation of fake documents to avail loan from bank or financial institutions.

Responsibility:- in both cases above, auditor responsibility is to report the management and if necessary to the those charged with governance . If the auditors is not satisfied then he should make modifications in his audit report.