Ch. 7 - Fraud

Question 1

Two types of fraud:

Answer 1

1. fraudulent financial reporting

2. misappropriation of assets

Question 2

Conditions that can lead to fraud - examples

Answer 2

1. inadequate governance
2. lack of ‘tone at the top’
3. inadequate internal control
4. large financial inentives

Question 3

The Fraud Triangle:

Answer 3

1. Incentives and pressures
2. Opportunity
3. Rationalization

Question 4

Fraud - Auditor Objectives

Answer 4

1. identify and assess the RMM of the FS due to fraud
2. Obtain sufficient and appropriate evidence of RMM due to fraud
3. respond to fraud or suspected fraud identified

Question 5

Fraud - Auditor Responsibilities

Answer 5

1. Perform procedures to identify the RMM
2. Assess the RMM due to fraud at the FS and assertion level
3. Determine audit responses to address RMM
4. Evaluate audit evidence to consider whether an identified misstatement
5. Obtain written representation from mgmt in relation to fraud
6. communicate with mgmt & TCWG

Question 6

Response to identified or suspected fraud

Answer 6

1. reevaluate the RMM due to fraud
2. communicate the issue with management
3. communicate with TCWG