CFE: Fraud Prevention and Deterrence

Terms in this set (175)

requires auditors to "brainstorm" to discuss the potential for material misstatements due to fraud.
• How and where they believe the entity's financial statements might be susceptible to fraud
• How mgt could perpetrate or conceal fraud
• How the entity's assets could be misappropriated

also include a consideration of known external and internal factors affecting the entity that might:
• Create incentives/pressures for management and others to commit fraud.
• Provide opportunity for fraud to be perpetrated.
• Indicate culture or environment enables mgt & others to rationalize committing fraud.


judgments about risk of material misstatements due to fraud have effect on how the audit is conducted:
• Predictability of auditing procedures: consistent audit procedures enables staff members to predict the tests, gives dishonest employees opportunity to disrupt the procedures or falsify data.
- address risk: incorporate an "element of unpredictability" in selection of auditing procedures to be performed, differing sampling methods and performing procedures at different locations or at locations on an unannounced basis.
• Assignment of personnel and supervision: auditor might consult with specialists in a particular field.
• Accounting principles: consider management's selection and application of significant accounting principles, particularly those related to subjective measurements and complex transactions.

fraud-related misstatements relevant for audit:
- misstatements from fraudulent financial reporting, occurs through intentional fraudulent omissions or inclusions in the financial statements
- misstatements from misappropriation of assets. Fraudulent financial reporting, involves the theft or misuse of company assets.

identifying risks that might result in material misstatements due to fraud, consider information in context of incentives/pressures, opportunities, and attitudes/rationalizations, as well as:
• type of risk that might exist (if involves fraudulent financial reporting or misappropriation of assets)
• significance of the risk (whether magnitude that could result in a possible material misstatement)
• likelihood risk results in material misstatement
• pervasiveness of risk (risk is pervasive to financial statement as whole or specifically to a particular assertion, account, or class of transactions)
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