- 5 Marks
Question
c) ISA 240 (Redrafted): The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements requires the Auditor to perform procedures to identify the risk of material misstatement due to fraud. The Auditor must evaluate information obtained from other risk assessment procedures to see if any fraud risk factors are present.
Required:
Explain FIVE (5) risk factors in risk assessment procedures with regard to fraud. (5 marks)
Answer
c) Fraud risk factors include:
- The need to meet third-party expectations, e.g., when the entity is seeking additional finance.
- Management being compensated through profit-related bonuses.
- An ineffective control environment.
- The entity’s profitability being under threat, e.g., due to competition or technological changes.
- The complexity of transactions or significant accounting estimates providing opportunities for fraud.
- Poor staff morale or weak enforcement of ethical standards by management.
- Personal financial pressures on staff, leading to misappropriation of assets.
- Tags: Fraud, ISA 240, Misstatement, Risk Assessment
- Level: Level 2
- Uploader: Dotse