Chapter 3 Section 5: Fraud Risk Flashcards
What is the difference between fraud and error?
Fraud is intentional and error is unintentional
What is fraudulent financial reporting?
Lying - intentional misstatements or omissions.
What is misappropriation of assets?
Stealing (aka defalcation)
What is corruption?
Cheating
What are the three fraud risk factors?
Pressure
Opportunity
Rationalization
Why may a properly planned audit not detect fraud?
Because the fraudsters try to conceal it.
What is management’s responsibility regarding the consideration of fraud?
Design, implementation, and maintenance of programs and controls to prevent, deter, and detect fraud
What is the auditor’s responsibility regarding the consideration of fraud?
Design the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, due to error or fraud
What two phases require analytical procedures?
Planning and final review
What four things must be considered regarding the attributes of risk?
Type
Significance
Likelihood
Pervasiveness
What are the two risks that we assume exist in every audit?
Improper revenue recognition
Management override of controls
What are the three responses to fraud risk?
Overall, general response
Response encompassing specific audit procedures (NET)
Response addressing risks related to mgmt override
Who should be talked to regarding misstatements caused by fraud?
Management at least one level above those involved
What documentation of risk assessment and response is required?
Complete documentation
