General

Question 1

What are the 3 parts of the fraud triangle?

Answer 1

Pressure, Opportunity, Rationalization

Question 2

What four steps are involved in detecting financial statement fraud?

Answer 2

1. Identify fraud exposures
2. Understand the symptoms.
3. Use various kinds of analyses to look for symptoms.
4. Follow up on symptoms observed.

Question 3

How is fraud detected?

Answer 3

Focusing on changes in reported assets, liabilities, revenues, & expenses from period to period or comparing company performance to industry norms.

Question 4

Common reasons why auditors fail to react properly?

Answer 4

Unsure of what to look for.

Unaware of correct procedures.

Reluctant to bring issues to engagement managements attention.

Fearful of offending company personnel.

Assume that a more senior member of the team will handle the issue.

Too much trust in company staff.

Intimidated by company management.

Pressure to complete audit tasks within budget.

Afraid of appearing incompetent.

Unwilling to second guess management.

Too willing to accept managements responses.