Considerations on the Methodology of Identification of Intentional Misstatements in the Financial Statements Resulting from an Entity’s Management Fraud
Author:
Prof. S.M. BYCHKOVA, Ph. D., Senior Lecturer E.U. ITYGILOVA
JEL:
M 42, M 10
DOI:
Keywords:
management, intentional misstatements, frauds, fraud detecting, audit evidence
Abstract:
Results of financial crimes investigations carried on in Russia indicate that during the crisis the number of frauds in case of financial reporting and assets hasn’t increased, but their structure has been changed. Thereby, three levels of fraud can be marked out: fraud conducted by employees; fraud conducted by operating level managers – chief accountants, financial directors and their deputies; fraud perpetrated by top managers and all those charged with governance (stakeholders, general director). While considering a risk of employees’ fraud auditor might expect receiving backing from stakeholders and senior management, third level fraud possibility of any support is minimized, especially in terms of collusion. Therefore, nowadays the number of first level crimes has been reduced due to growth of top level fraud, and their dangerous degree has become significantly higher. \r\nAnalysis of the assurance problem in case of entity’s fraudulent financial reporting shows that main reasons for it are: first of all, misconduct of auditing standards requirements; secondly, existence of circumstances that make the process of entity’s management fraud misstatements detecting objectively more complicated; thirdly, imperfection of audit methodology in respect of such fraud detecting. \r\nSeems probable that solving methodological questions will allow a certain degree of reduction of detection risk as to auditing of intentional misstatements in financial statements facts.\r\n\r\n\r\n