S2 fraud and behaviours Flashcards
what is fraud
intentional act by one or more individuals involving use of deception to obtain an unjust or illegal advantage
what can fraud in FS result from
concerned with fraud that causes a material misstatement in FS resulting from
Fraudulent financial reporting
Misappropriation of assets
TCWG responsibility
TCWG have primary responsibility for detection and prevention
Create a culture of honesty and ethical behaviour and implement appropriate controls
what is auditor responsibility
auditor is not responsible for detecting and preventing:
Identify and assess risks of material misstatement
Obtain sufficient evidence
Respond appropriately to fraud or suspected fraud
why can’t auditors obtain absolute assurance
Fraud is sophisticated and carefully planned
Designed to conceal and deceive
Fraud or error?
Possible collusion
Procedures for detecting errors may not detect fraud
what are fraud risk factors
unusual relationships in FS
Incentives
Opportunities
Attitudes
How is management overseeing it
what to do if fraud is suspected
Professional scepticism
Increase scope
Evaluate policies
Use experts
Consider characteristics of key personnel - honesty, integrity, collusion, motivation, opportunity
Report to authorities
Get complete audit documentation including written representation
how is fraud accomplished
manipulation of accounting records
Misrepresentation of transactions
Misapplication of accounting principles
Inappropriate disclosures
what are fraud red flags
discrepancies in accounting records
Conflicting or missing evidence
Problematic or unusual relationship between management and auditor
Unexpected behaviour of management and employees
what is professional judgement
understand biases an other relevant psychological factors
Sensitivity to uncertainty
Commitment to quality
