Due to AICPA auditing standards—namely the Clarified Statement on Auditing Standards (AU-C) Section 240, Consideration of Fraud in a Financial Statement Audit—financial statement auditors are required to evaluate and assess fraud-related material misstatement risks and determine appropriate responses.
Keep reading to learn why it’s important to conduct in-person interviews when evaluating fraud-related misstatement risks.
What to expect in an audit inquiry
A crucial aspect of the audit process is asking fraud-related questions. Specific areas of inquiry include:
- Whether management is aware of any fraud—actual, suspected, or alleged
- Management’s identification, assessment, and response tactics regarding fraud risks
- The results of any fraud risk assessments
- Any previously identified fraud risks
- Transaction, account balance, or disclosure classes likely to contain a fraud risk
- Any communications regarding fraud risk identification and response processes, including sharing views on appropriate and ethical business practices and behavior with employees
Each audit requires a separate interview, as fraud risks can vary by accounting period.
The importance of nonverbal communication
While the pandemic resulted in a number of audit procedures being done remotely, auditors are returning to face-to-face fraud risk interviews for more effective evaluations.
Psychologists estimate that 55% of communication is body language—meaning that in an in-person interview, auditors can pick up on nonverbal cues they may have otherwise missed in a virtual setting. In addition to the words being spoken, tone and inflection, and the speed of response, auditors can also keep an eye on the interviewee’s physical comportment.
The auditor will look for signs of stress as the interviewee is answering questions—for example, long pauses before responding, starting over mid-explanation, sweating profusely, or fidgeting.
An additional benefit of face-to-face interviews is that they allow for immediate follow-up. While in-person meetings are ideal, they aren’t always a viable option. In these cases, video or phone calls are the next best thing.
Work with us
External audits are an important tool for identifying fraud risks. While they’re not guaranteed to detect all unethical behavior, they often deliver results. According to Occupational Fraud 2022, companies who had financial statements audited were able to detect fraud 33% faster—and lost one-third less from fraud—than those who hadn’t.
Our team can help you with the audit process by providing services tailored to your unique needs. By anticipating the type of information we’ll ask for, from questions to source documents, you can help streamline our fraud risk assessment process. When you provide prompt responses, we can ensure that your audit stays right on schedule. Contact us to learn how we can help.