Chapter 3 Section 4: Fraud Risk

Question 1

What’s the difference between errors and fraud?

Answer 1

Error is unintentional

Fraud is intentional

Question 2

What does fraudulent financial reporting mean?
Misappropriate of assets?
Corruption?

Answer 2

Lying
Stealing
Cheating

Question 3

What are the fraud risk factors?

Answer 3

Pressure
Opportunity
Rationalization

Question 4

Why is fraud harder to detect that error?

Answer 4

Because the fraudster makes effort to conceal it

Question 5

What’s management’s responsibility regarding fraud?

The auditor’s responsibility?

Answer 5

Design and implement programs and controls to prevent, deter, and detect fraud
Design the audit to obtain reasonable assurance about whether the financials are free of material misstatements

Question 6

When are analytical procedures required?

Answer 6

Planning stage

Final review stage

Question 7

What are the four attributes of fraud risk?

Answer 7

Type of risk
Significance of risk
Likelihood of risk
Pervasiveness of risk

Question 8

What are the two presumptions of fraud risk?

Answer 8

Improper revenue recognition

Management override of controls

Question 9

What two factors make them more susceptible to fraud risk?

Answer 9

High degree of management judgment

Highly complex accounting principles

Question 10

What are the three responses to fraud risk?

Answer 10

Overall, general response
Response encompassing specific audit procedures
Response addressing risks related to management override

Question 11

What parties outside of management does the auditor need to communicate fraud to?

Answer 11

Anyone to comply with legal and regulatory requirements
Successor auditor with client’s permission
Subpoena
Funding agencies
Authorities