Tímarit um endurskoðun og reikningshald - 01.01.1976, Blaðsíða 46

that should prevent or detect them in ad-
vance of a particular examination prima-
rily through the development of questi-
onnaires, checklists, instructions or simi-
lar generalized material. In the develop-
ment of generalized materials, the audi-
tor is able to take advantage of accumu-
lated experience and understanding of the
points of risk for probable errors and irre-
gularities. Experience has shown that
frauds or their concealment commonly in-
volve manipulation at particular points in
the financial operations of a business, for
example, cash manipulations near a bal-
ance sheet date, and often fall into vari-
ous well-known patterns.
The auditor’s consideration of possible
errors and irregularities and the control
procedures that should prevent or detect
them normally need not distinguish be-
tween the possibility of unintentional mis-
takes and defalcations. When a person is
functioning within a control system the
possibilities for unintenional mistakes are
equally applicable to perpetration of irre-
gularities.
A sound system of internal control eli-
minates the probability of irregularities,
but not their possibility. Thus, the audi-
tor cannot place complete reliance on in-
ternal control. Any system of internal
control is subject to certain inherent li-
mitations so that certain types of errors
irregularities are always possible.
The auditor’s ordinar>' examination
contains auditing procedures to test for
the occurrence of errors (unintentional
mistakes) that are possible even in an ex-
cellent internal accounting control system
and that could have a material effect on
the financial statements. It also contains
auditing procedures to test management’s
estimates and judgments required in the
preparation of financial statemens and to
test the validity and propriety of material
transactions and balances.
On the other hand, unless his evalua-
tion of internal control has disclosed ma-
terial weaknesses, the auditor’s ordinary
examination does not contain auditing
procedures to test for defalcations and si-
milar irregularities. For a noncollusive
employee defalcation to occur and re-
main undetected under conditions of ex-
cellent internal control, the control failu-
re would have to be one that is highly
improbable. For example, someone who is
not supposed to have access to cash in his
normal course of duties would suddenly
have to gain such access—a failure so
improbable that the possibility of resul-
tant irregularities could be considered re-
mote.
The auditor’s consideration in the ord-
inary examination of the possibility of
deliberate management misrepresentations
and the possibility of defalcations when
weakness in internal control are present
are influenced by his state of mind in
approaching the examination and the re-
sultant circumstances that should cause
him to suspect the existence of fraud. The
independent auditor’s concern with the
possibility that fraud might exist is cau-
sed by his concern that the financial state-
ments might he materially misstated as a
result of that fraud. The auditor is not
concerned with fraud as such, but with
44