Ch.7 Fraud

Question 1

CAS 240

Answer 1

the auditor’s responsibilities relating to fraud in an audit of financial statements

Question 2

Fraudulent financial reporting

Answer 2

occurs at the management level through intentional omissions or manipulation of amounts or disclosures with the intention of deceiving users and stakeholders
management may have incentives = bonuses, stocks
pressure

Question 3

Misappropriation of assets

Answer 3

occurs at the employee level in relatively small amounts
embezzlement, theft of small assets, theft of intellectual property, unauthorized personal purchases, and the use of company assets for personal use

Question 4

conditions that create an environment for fraud

Answer 4

• inadequate corporate governance
• lack of “tone at the top”
• inadequate internal control
• large financial incentives
• complex business operations
• high expectations by investors

Question 5

Step 1

Answer 5

Incentives and pressures
management = external pressure eg market+investor expectation
ee= personal financial problems

Question 6

Step 2

Answer 6

opportunity
management= override controls given their position
ee= exploiting deficiencies in an organization’s system of internal control
MAINLY ASSESS CR -> weakness in internal control

Question 7

Step 3

Answer 7

Rationalization and attitude
eg. management= overstated NI to get a bank loan
ee= stole assets cuz company froze ee wages

Question 8

Procedures auditor should take

Answer 8

• Perform procedures to identify the risk of material misstatement due to fraud.
• Assess the risk of material misstatement due to fraud at the financial statement and assertion level.
• Determine audit responses to address risk of material misstatement.
• Evaluate audit evidence to consider whether an identified misstatement may indicate fraud has occurred.
• Obtain written representations from management in relation to fraud.
• Communicate with management, those charged with governance, and regulatory authorities.

Question 9

CAS 240 A14

Answer 9

relating to small businesses -> focus on ee and assets