[syllo2012]

I am using Becker to study for auditing and I am a little confused about the following:

“Management acknowledges its responsibility for the design of controls to detect and prevent fraud in its management representation letter.”

“Management acknowledges its responsibility for the fair presentation of the financial statements and states that they are unaware of any employee fraud, but does not acknowledge responsibility for the detection of employee fraud.”

Those two statements seem to contradict each other.

Which one is correct?

FAR - 04/15/13 70 - 07/02/13 79!!!
AUD - 08/19/13 84 🙂
REG - 10/14/13
BEC - 11/29/13

Using Becker

[kylek1989]

In the first statement, management acknowledges responsibility for designing controls to detect and prevent fraud.

In the second statement, management acknowledges that they have disclosed all known instances of fraud, but does not acknowledge responsibility for detecting all employee fraud.

The key difference here is that management is responsible for designing the controls to prevent fraud, and communicating all known instances of fraud to the auditor. However, management is not responsible for actively seeking out all known instances of fraud beyond the design and implementation of controls ( they only have to disclose fraud that they are aware of to the auditor).

Technically, both statements are correct.

Another way to think of it is the MR DIM acronym. Management is responsible for the design, implementation, and maintenance of internal controls. The internal controls themselves (which management is responsible for establishing) are what prevent and/or detect fraud.

BEC- 84
AUD- 87
REG- 11/4/13
FAR- 1/10/14

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