Question

What cultural factors contributed to the fraud? As an auditor, how would that impact your fraud risk assessment of the client?

(auditing

Answer 1

Fraud may be defined as an intentional act by one or more individuals among management , Governance, Employees, or third parties l, involving the use of deception to obtain an unjust or illegal advantage.
The auditor is concerned with fraud that causes a material misstatement in the financial statements. Two types of intentional misstatement are relevant to the auditor.
1) Misstatement resulting from fraudulent financial reporting
2) misstatement resulting from misappropriation of assets.

Contributing factors to fraud include: Poor internal controls, Management override of internal controls, Collusion between employees, and Collusion between employees and third parties.

Red flags are warnings that something could be or is wrong.

Auditors, employees, and management need to be aware of red flags in order to monitor the situation and then take corrective action as needed.

Employees who notice that red flags are ignored believe that they won’t get caught.

A little fraud soon becomes a large one if left to grow.

Example are
- Fewer pay increases
- Increased layoffs
- Greater pressure to increase revenue
- Decreases in employee benefits
- Low employee morale
- Negative publicity for the organization

To identify and assess the risk of material misstatement in the financial statements due to fraud.
To obtain sufficient and appropriate audit evidence about the assessed risk of material misstatement due to fraud and
To respond appropriately to identified or suspected fraud

Impacted on Auditor fraud risk assessment procedures,
Auditor shall design and perform further audit procedures whose nature timing and extent are responsive to the assessed risk of material misstatement due to fraud at the assertion level,
He should also include the surprise element in his audit procedure to detect further fraud,
Assign and supervise personnel as per their capabilities to detect fraud,
Evaluate accounting policies further.