Auditing: A Risk Based-Approach to Conducting a Quality Audit
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Chapter 2, Problem 20MCQ
To determine

Introduction:Fraud refers to an intended attempt to misrepresent the financial statement of an entity in order to attain some personal gain or advantage.

To identify:The statement that detersand detects fraud in financial reporting.

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“The deliberate fraud committed by management that injures investors and creditors through materially misleading financial statements. The use of incentive systems and opportunities for fraudulent behavior are associated with higher fraud risk assessments by audit partners; however, the most important factors are senior management ethical attitudes and dishonest communication from management with the external auditor.” Required: Compare and contrast financial statement fraud with asset misappropriation. Why is it important to analyze the relationship between a company and its auditors?
Management fraud (fraudulent financial reporting) is not the expected norm, but it happens from time to time. In the United States, several cases have been widely publicized. They happen when motives and opportunities overwhelm managerial integrity.a. What distinguishes management fraud from a defalcation?b. What are an auditor’s responsibilities under auditing standards to detect management fraud?c. What are some characteristics of management fraud that an audit team should consider to fulfill the responsibilities under auditing standards?d. What factors might an audit team notice that should heighten the concern about the existence of management fraud?e. Under what circumstances might an audit team have a duty to disclose management’s frauds to parties other than the company’s management and its board of directors?
Which of the following characteristics is most likely to heighten an auditor’s concernabout the risk of material misstatements due to fraud in an entity’s financial statements?(1) The entity’s industry is experiencing declining customer demand.(2) Employees who handle cash receipts are not bonded.(3) Internal auditors have direct access to the board of directors and the entity’smanagement.(4) The board of directors is active in overseeing the entity’s financial reporting policies.
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