- 10 Marks
Question
According to ISA 240: The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements, the term “Fraud” refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties involving the use of deception to obtain an unjust or illegal advantage.
Required:
i) State the TWO (2) types of fraud as identified by ISA 240.
ii) For each type of fraud, list THREE (3) examples.
Answer
i) Two types of fraud are identified by ISA 240:
- Fraudulent financial reporting
- Misappropriation of assets
(4 marks)
ii) Examples of fraudulent financial reporting:
- Forging or altering accounting records or supporting documentation which form the basis of the financial statements.
- Misrepresenting or intentionally omitting transactions from the financial statements.
- Intentionally misapplying accounting principles.
(3 marks)
Examples of misappropriation of assets:
- Embezzling receipts (for example, diverting them to personal bank accounts).
- Stealing physical assets (such as inventory) or intellectual property (for example, by selling “trade secrets” to a competitor).
- Causing an entity to pay for goods and services not received (for example, by creating fictitious suppliers).
(3 marks)
- Topic: Audit and Assurance Risk Environment
- Series: DEC 2022
- Uploader: Theophilus