QUESTIONS
Define fraudulent financial reporting and give two examples that illustrate fraudulent financial reporting.
Define misappropriation of assets and give two examples of misappropriation of assets.
Give examples of risk factors for fraudulent financial reporting for each of the three fraud conditions: incentives/pressures, opportunities, and attitudes/ rationalization.
Give examples of risk factors for misappropriation of assets for each of the three fraud conditions: incentives/pressures, opportunities, and attitudes/ rationalization.
What should the audit team consider in its planning discussion about
fraud risks?
Auditors are required to make inquiries of individuals in the company when gathering information to assess fraud risk. Identify those with whom the auditor must make inquiries.
The two components of professional skepticism are a questioning mind and a critical assessment of the audit evidence. How do these components help an auditor distinguish an unintentional misstatement from an intentional (fraudulent) misstatement?
Discuss the importance of the control environment, or “setting the tone at the top,” in establishing a culture of honesty and integrity in a company.
Distinguish management’s responsibility from the audit committee’s responsibility for designing and implementing antifraud programs and controls within a company.
Describe the types of overall responses by auditors to address fraud
risk.
What three auditor actions are required to address the potential for management override of controls?
What do auditing standards require the auditor to consider
when assessing the risk of material misstatements in revenue?
You go through the drive-through window of a fast food restaurant
and notice a sign that reads, “Your meal is free if we fail to give you a receipt.” Why would
the restaurant post this sign?
Name the three categories of inquiry and describe the purpose
of each when used by an auditor to obtain additional information about a suspected
fraud.
Identify three verbal and three nonverbal cues that may be observed
when making inquiries of an individual who is being deceitful.
You have identified a suspected fraud involving the company’s con-
troller. What must you do in response to this discovery? How might this discovery affect
your report on internal control when auditing a public company?
Describe the types of information that should be included in the au-
ditor’s working papers as evidence of the auditor’s fraud assessment procedures
