In: Accounting
In this scenario, the audit engagement allows for 1,000 hours of audit work on an attestation engagement. You are the auditor assigned to the case. Your audit manager explains to you that you cannot exceed 1,000 hours of billable hours to the client. You are wondering what might happen if you found evidence of a fraud, whether that would affect the audit. You express your concern about the audit with your manager. Your manager tells you not to worry about it, because you may not find any evidence of fraud, anyhow. She reemphasized the need to stay with the allotted hours for the engagement. The auditor has to exercise professional judgment in planning and conducting fieldwork while faced with staying within the allotted hours to complete the audit engagement; yet you feel that you need to spend more time looking for evidence of fraud. You feel as though your manager is more concerned about finishing the audit engagement on time than in spending any extra time trying to detect fraud. The ethical dilemma is that you feel your manager is not allowing you enough time to conduct testing in an effort to find fraud. Explain how you would approach your manager to raise your concern in spending what you feel is an appropriate amount of hours trying to find evidence of fraud.
In case of conducting audit within a specific time period planning of an audit is very important
An auditor can only provide a reasonable assurance regarding the lack of material misstatements in the financial statements. Therefore there is always an inherent risk that the auditor may miss out on reporting or finding any material misstatements in the financial system.
The auditor while approaching the manager first needs to decide on the scope and sample size and timeline of completion of verification of those samples with spare time available. In case any fraud or material misstatements is evident in those samples then the auditor needs to increase his sample size and he needs to do that with sufficient and appropriate audit evidence to the audit manager, while reporting the same he must take into account the level of risk factor and accordingly consider the implications.
If the auditor is of the view that the risk faced is low or in some cases medium then the auditor should try to finish the audit within 1000 billed hours.
But if the risk is high then the auditor should provide the impact of the risk on the financial statements with sufficient and appropriate audit evidence and with data prove to the manager the implications of not extending the audit beyond 1000 billed hours and also determine the new size of sample based on the risk