Lesson: Engagement Team Discussion

Instructor: Nick Palazzolo

This lesson covers the engagement team discussion during the planning stage of an audit, which focuses on brainstorming the potential risks of material misstatement due to fraud. Nick Palazzolo, CPA, discusses the importance of including senior staff and the auditor with final responsibility in this initial meeting, where the team considers factors such as potential asset misappropriation and how management could conceal fraudulent financial reporting. The lesson emphasizes maintaining professional skepticism, assessing external and internal factors that may increase the risk of fraud, and understanding the importance of recognizing the potential for management override of controls. Additionally, the team will discuss how to respond if fraud is discovered and the importance of maintaining a questioning mindset throughout the audit process.

Updated: June 22, 2023 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Once you have this initial engagement team discussion, this is in your planning stage. This is the brainstorming session. You might see it referred to as that. The initial brainstorming session. Now, generally, this is going to be senior staff and above. Now, in practice, you may have your normal staff, you may have absolutely everyone, which is fine. But generally speaking, that's kind of the overarching textbook way to do it. And you definitely want the auditor with the final responsibility for the audit. This could be called the engagement group auditor. It's the partner, whoever's the head honcho, whoever's completely in charge and likely putting their signature down next to that opinion. So pretty important that they are included here as well. You're going to discuss where they believe the entity's financial statements may be susceptible to material misstatement due to fraud. How management could perpetrate and conceal fraudulent financial reporting, and how assets of the entity could be misappropriated. All super important. You want to assess, okay, if we've got a tech company, you may say, well, they don't have any physical goods. They don't sell anything. But how could assets be misappropriated? Well, every company's got cash. So that's going to be a possible area of misappropriation. Maybe management is going, because it's a cutting edge technology company, management could possibly overestimate their assets, their intangibles, their technology. Maybe they are stealing from another company intellectual property and then claiming it as their own intellectual property and writing that as an asset in their books. These are just brainstorming, right? This is me just standing here brainstorming different ways that a company could be conducting fraudulent activity. We are going to make sure that we consider known external and internal factors. So if the company stock

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Engagement Planning, Understanding an Entity, & Understanding its Internal Control

Module: 2 Concepts, 36 Lessons

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Overview

1:09

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Objectives

4:41

Introduction to Management's Representation and Responsibility

2:56

Reliance on Management Representations