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CIA 2004-Week 2 - Additonal Material-Chapter 11
CIA 2004-Week 2 - Additonal Material-Chapter 11
Considering the
Risk of Fraud
11-3
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1
Define fraud and distinguish
between fraudulent financial
reporting and misappropriation of
assets.
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Management
Fraud
Fraudulent
Misappropriation
financial
of assets
reporting
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2
Describe the fraud triangle and identify conditions
for fraud.
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Incentives/Pressures
Opportunities Attitudes/Rationalization
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Incentives/Pressures:
Financial stability or profitability is threatened by
economic, industry, or entity operating conditions
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Opportunities:
There are significant accounting estimates that
are difficult to verify
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Attitudes/Rationalization:
Inappropriate or inefficient communication
and support of the entity’s values is evident
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Incentives/Pressures:
Personal financial obligations create pressure
to misappropriate assets
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Opportunities:
There is a presence of large amounts of cash
on hand or inventory items
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Attitudes/Rationalization:
Disregard for the need to monitor or reduce
risk of misappropriating assets exists
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3
Understand the auditor’s responsibility for
assessing the risk of fraud and detecting
material misstatements due to fraud.
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Auditing standards provide guidance to
Auditors in assessing the risk of fraud.
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Discussion among engagement team
Procedures performed to assess risk
Specific risks and audit response
Reasons supporting conclusions
Results of procedures performed
Other conditions and analytical
relationships
Nature of communications
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4
Identify corporate governance and
other control environment factors
that reduce fraud risks.
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1. Culture of honesty and high ethics
2. Management's responsibility
to evaluate risks of fraud
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Organizational code of conduct
Conflicts of interest
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Relationships with clients and suppliers
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Organization records and communications
Prompt communications
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5
Develop responses to identified
fraud risks.
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Change the overall conduct of the audit
to respond to identified fraud risks.
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6
Recognize specific fraud risk areas and
develop procedures to detect fraud.
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Revenue and accounts receivable fraud risks
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7
Understand interview techniques
and other activities after fraud is
suspected.
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Informational
Assessment
Listening
Evaluating
responses
Interrogative
Observing
behavioral cues
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Copyright
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