http://cebviews.com/uploads/2011/01/FraudChecklist.pdf
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Fraud Checklist
Client Name Balance Date
Disclosing entity Close Monitoring
Prepared by Date
Reviewed by Date
Partner review Date
How to use this checklist
An initial assessment of the risk that irregularities (including fraud) may result in the financial
report containing a material misstatement should be made during the planning phase of the
engagement. Audit procedures should then be designed to provide reasonable assurance that
such misstatements will be detected. Audit procedures do not have to be designed to detect all
instances of fraud. During other phases of the engagement the audit team should be alert to any
changes in the initial assessment.
Part A of this checklist should be completed at the planning phase for all engagements to identify
conditions or events that may increase the risk of irregularities. When this indicates a heightened
risk of the likelihood of irregularities the engagement team should factor this higher risk into the
procedures to be performed and in completing Part B of the checklist.
Executive Summary
From the enquiries made and procedures performed in completing Part A of this checklist we
consider the likelihood of irregularities to be heightened
From the enquiries made and procedures performed in completing Part B of this checklist we
consider the risk of irregularities to be
All members of the engagement team have been advised of this assessment so that they can
factor this into their evaluation of audit evidence
In the course of this engagement we have identified circumstances that indicated an irregularity
If yes provide a summary of additional procedures and action taken below.
The following audit procedures were completed to determine the impact of the irregularity on the
financial report:
The following actions were taken to advise management or the governing body of the irregularity:
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PART A – Conditions or events that increase the risk of irregularities
Statement Yes/No Comments
1. Is there a motivation for management to engage in fraudulent
financial reporting? For example:
Management compensation represented by bonuses etc
contingent upon achieving aggressive targets;
Aggressive use of accounting practices to achieve target
share price or earnings trend.
2. Has there been a failure by management to display and
communicate an appropriate attitude regarding internal control
and the financial reporting process? For example:
Management is dominated by a single person or small
group without effective oversight;
Inadequate monitoring of significant controls or failure to
correct material weaknesses in controls;
Management disregards regulatory authorities.
3. Has there been from non-financial management excessive
participation in, or preoccupation with, the selection of
accounting principles or the determination of significant
estimates?
4. Has there been a high turnover of management, legal advisers
or board members?
5. Is there a strained relationship between management and the
current or predecessor auditor?
6. Has there been a history of Corporations Act violations against
the entity or its senior management alleging fraud or violations
of the applicable laws?
7. Is there an activity undertaken by the Agency/Authority that
operates autonomously i.e. it is not subject to the normal
governance framework or controls applied at the
Agency/Authority level?
8. Is the corporate governance structure weak or ineffective
(e.g. members lack independence from management)?
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PART A – Conditions or events that increase the risk of irregularities (cont’d)
Yes/No Comment
Statement Yes/No Comments
1. Are there new accounting, statutory or regulatory requirements
that could impair the financial stability or profitability of the
entity?
2. Is there a high degree of competition or market saturation,
accompanied by declining margins?
3. Does the client operate in a declining industry with increasing
business failures and significant declines in customer demand?
4. Does the client operate in a rapidly changing industry such as
one which has a high vulnerability to rapidly changing
technology or rapid product obsolescence?
5. Has the client been unable to generate cash flows from
operations while reporting earnings and earnings growth?
6. Is the client subject to significant pressure to obtain additional
capital necessary to stay competitive considering the financial
position of the entity including the need for funds to finance
major research and development or capital expenditures?
7. Are there any assets, liabilities, revenues, or expenses based
on significant estimates that involve unusually subjective
judgments or uncertainties, or that are subject to potential
significant change in the near term in a manner that may have
a financially disruptive effect on the entity?
8. Are there any significant related party transactions not in the
ordinary course of business or with related entities not audited
or audited by another firm?
9. Are there significant, unusual or highly complex transactions
(especially those close to the end of the period) that pose
difficult questions concerning substance over form?
10. Are there significant bank accounts or subsidiary or branch
operations in tax-haven jurisdictions for which there appears to
be no clear business justification?
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PART A – Conditions or events that increase the risk of irregularities (cont’d)
Yes/No Comment
Statement Yes/No Comments
1. Is there an overly complex organizational structure involving
numerous or unusual legal entities, managerial lines of
authority, or contractual arrangements without apparent
business purpose?
2. Is there difficulty in determining the organization or individual(s)
that control(s) the entity?
3. Has there been unusually rapid growth or profitability, especially
compared with that of other companies in the same industry?
4. Is the client especially vulnerable to changes in interest rates?
5. Does the client have an unusually high dependence on debt or
marginal ability to meet debt repayment requirements; debt
covenants that are difficult to maintain?
6. Has the client unrealistically aggressive sales or profitability
incentive programs?
7. Is there a threat of imminent bankruptcy, foreclosure or hostile
takeover?
8. Have there been any adverse consequences on significant
pending transactions (such as a business combination or
contract award) if poor financial results are reported?
9. Does the client have a poor or deteriorating financial position
when management has personally guaranteed significant debts
of the entity?
10. Are the following risk factors present when considering the
susceptibility of assets to misappropriation:
Large amounts of cash on hand or processed;
Inventory characteristics, such as small size, high value, or
high demand;
Easily convertible assets, such as bearer bonds,
diamonds, or computer chips;
Fixed asset characteristics, such as small size,
marketability, or lack of ownership.
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PART A – Conditions or events that increase the risk of irregularities (cont’d)
Statement Yes/No Comments
(b) Risk Factors Relating to Controls
1. Is there a lack of appropriate management oversight (for
example inadequate supervision or inadequate monitoring
of remote locations)?
2. Are suitable procedures in place to screen job applicants for
positions where employees have access to assets
susceptible to misappropriation?
3. Is there adequate record keeping for assets susceptible to
misappropriation?
4. Are there appropriate segregation of duties and independent
checks?
5. Is there an appropriate system of authorization and approval
of transactions (for example, in purchasing)?
6. Are there poor physical safeguards over cash, investments,
inventory or fixed assets?
7. Does appropriate documentation exist for each transaction?
8. Is there a lack of mandatory vacations for employees
performing key control functions?
Some Additional Factors Relevant to a CIS Environment
9. Has there been minimal planning for the installation of new
hardware and software technology?
10. Are there inadequate computer skills amongst relevant entity
staff and/or the concentration of CIS knowledge in a
particular individual or individuals?
11. Is there use of inappropriate hardware or software to perform
important functions?
12. Are there poor physical or logical access controls?
13. Is there inadequate or inappropriate file access hierarchy?
14. Is there a lack of a clear audit trail and transaction log?
15. Is there shared or non-specific ownership of data?
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PART A – Conditions or events that increase the risk of irregularities (cont’d)
Yes/No Comment
Statement Yes/No Comments
1. Have there been hardware failures, including
excessive amounts of “down-time” and resultant
input backlogs?
2. Have there been software failures?
3. Is there a failure to restrict access to software and
documentation to authorized personnel?
4. Are there program changes that have not been
documented, approved and tested?
5. Is there inadequate overall balancing of computer
transactions and data bases to the financial
accounts?
6. Are there inappropriate data and program storage
media?
7. Are there inadequate detection procedures for
system viruses?
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PART B – Circumstances which may indicate the Possibility of Irregular Acts
Yes/No Comment
Statement Yes/No Comments
(a) Discrepancies in Accounting Records
1. Are there transactions which are not recorded in a
complete or timely manner or improperly recorded with
respect to amount, accounting period, classification, or
entity policy?
2. Are there unsupported or unauthorized balances or
transactions?
3. Are there last-minute adjustments by the entity that
significantly affect the financial results?
(b) Conflicting, Missing or Unusual Evidential Matter
Is there evidence of the following?
Missing documents;
Unavailability of other than photocopied documents
when we expect original documents to exist;
Significant unexplained items on reconciliations
including unreconciled suspense accounts;
Inconsistent, vague or implausible responses from
management or employees arising from inquiries or
analytical or data analysis procedures;
Fewer confirmation responses than expected or
significant differences revealed by confirmation
responses;
Missing inventory or physical assets of significant
magnitude;
Handwritten alterations to documentation, or
handwritten documentation that ordinarily is
electronically printed;
Significant difficult to audit figures in the accounts.
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PART B – Circumstances which may indicate the Possibility of Irregular Acts (cont’d)
Statement Yes/No Comments
(c) Problematic or Unusual Relationships between
the Auditor and the Client
1. Do any of the following circumstances exist?
Access denied to records, facilities, certain
employees, customers vendors or others from whom
we might seek audit evidence;
Undue time pressures imposed by management to
resolve complex or contentious issues or audit
completion;
Limitation in audit scope imposed by management;
Unusual delays by the entity in providing information
we request;
Tips or complaints to the auditor about fraud;
Matters identified by us and not disclosed by
management.
(d) Unusual Behavior by Management
2. Does any of the following behavior exist?
A reluctance by management to engage in frank
communication with appropriate third parties such as
regulators and bankers;
Evidence of an unduly lavish lifestyle by officers and /
or employees;
Aggressive application of accounting principles.
Conclusion:
