Consideration of Fraud

Question 1

Auditor must obtain

Answer 1

Reasonable Assurance that F/S are free of Material Misstatements caused by error or fraud

Question 2

Fraud is an intentional misstatement or omission which involves management because

Answer 2

management is in a position to manipulate accounting

management can override controls

Question 3

Fraud Risk Categories

Answer 3

Fraudulent Financial Reporting

Misappropriation of Assets (Defalcation)

Question 4

What are the presumptions of fraud risk in ever audit

Answer 4

1) Improper revenue recognition

2) Management override of controls

Question 5

What are the Fraud Risk Factors

Answer 5

1) Incentive/Pressures - reason to commit fraud
2) Opportunities - Ineffective/override of controls
3) Rationalization/Attitude - justification

Question 6

Audit procedures to address fraud risk

Answer 6

1) Discuss Fraud risk with engagement personnel
2) Obtain information to identify specific fraud risk
3) Assess Fraud risk & develop response
4) Evaluate audit evidence regarding fraud
5) Make appropriate communications about fraud
6) DOCUMENT auditor’s consideration of fraud

Question 7

Communication of Fraud to 3rd parties is usually not done except

Answer 7

1) to the SEC to comply with legal and regulatory requirements (Form 8-K or other forms)
2) Successor Auditor
3) Subpoena
4) Funding agency that receives Government financial assistance