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Published on 7 Jan 2011
School
UTM
Department
Management
Course
MGT321H5
Professor
CLASS SEVEN SUMMARY
CAS 240: Auditors Responsibilities with Fraud
Fraud
The CAS requires the auditor to:
oProperly identify fraud risk factors
oAssess fraud risk accordingly
oDesign audit procedures to mitigate these risks
Characteristics of Fraud
oMisstatements are intentional vs. unintentional.
oWe are concerned with material fraud
oTwo types of misstatements:
Fraudulent financial reporting
Misappropriation of assets
Requirements to Avoid Fraud
oProfessional scepticism should be practiced
oThe engagement team should discuss where fraud may be possible
oInquires should be made to determine if any fraud has taken place or has
been suspected.
oIdentify any unusual or unexpected relationships between accounts (not
people).
oEvaluate fraud risk factors:
Incentives/Pressures
Financial stability is threatened by economic factors
Meeting covenant expectations
Covenants
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The personal financial situation of management is affected by
the entitys financial situation.
Adverse relationships between the employees and the
management may lead to theft.
Opportunities
Significant related-party transactions
Significant uses of estimates
Bad internal controls (no separation of duties) large amounts
of cash on hand.
Attitudes & Rationalization
Management failing to fix internal controls
Non-financial management takes part in making decisions
when choosing accounting policies.
Some kind of falling out between the current/previous auditor
and the management.
Tolerance of petty theft.
Changes in behaviour or lifestyle.
Responses to assessed fraud risk factors
oVisiting locations or performing certain tests on a surprise or unannounced
basis.
oInventory count should be done at the end of the reporting period so to
minimize the risk of manipulation.
oAltering audit procedures
oConduct interviews of personnel involved in areas with significant fraud risk.
Specific Responses
oRevenue Recognition
Substantive testing
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