Question

Write a 750- to 1,050-word paper on fraud auditing and IT auditing.

Describe the different kinds of fraud and the Fraud Triangle, an auditor's responsibility to identify and assess fraud.
Describe the specific risks, benefits, and internal controls associated with IT functions.

Answer 1

Fraud refers to a deception that is intentional and caused by an employee or organization for personal gain. In other words, fraud is a deceitful activity used to gain an advantage or generate an illegal profit. In addition, the illegal act benefits the perpetrator and harms other parties involved

The fraud triangle is a framework used to explain the motivation behind an individual’s decision to commit fraud.The fraud triangle consists of three components: (1) Opportunity, (2) Incentive, and (3) Rationalization.Fraud refers to the deception that is intentional and caused by an employee or organization for personal gain.

An auditor conducting an audit in accordance with ISAs is responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error. Because of the inherent limitations of an audit, material misstatements of the financial statements may not be detected. As described in ISA 200 the potential effects of inherent limitations are particularly significant if misstatement results from fraud. The risk of not detecting fraud is higher than the risk of not detecting error because fraud may involve sophisticated and carefully organised schemes designed to conceal it (such as forgery, deliberate failure to record transactions). Concealment of fraud as a result of collusion may be even more difficult to detect. Collusion may cause the auditor to believe that audit evidence is persuasive when it is, in fact, false. Furthermore, because management is frequently in a position to manipulate accounting records or override controls, the risk of the auditor not detecting management fraud is greater than for employee fraud.

With regards to fraud, the objectives of the auditor are:

■toidentifyandassesstherisksofmaterialmisstatementofthefinancialstatementsdue to fraud;

■ to obtain sufficient appropriate audit evidence regarding the assessed risks of mate- rial misstatement due to fraud, through designing and implementing appropriate responses; and

■ to respond appropriately to fraud or suspected fraud identified during the audit.