Question

2. With respect to financial statement fraud, which one of the following statements is not correct? Select one:

A. Enquiries of management are more useful for detecting management fraud than employee fraud.

B. Excessive pressure on management to meet expectations of third parties creates incentives for management fraud.

C. The auditor needs to consider the likelihood of collusion in determining the appropriate level to report suspicions of fraud.

D The auditor must consider the risk of material fraud at both the financial statement level and the assertion level.

Answer 1

1.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.

Fraud risk factors - Events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud.

Examples of Fraud Risk Factors:

1.The need to meet expectations of third parties to obtain additional equity financing may create pressure to commit fraud.

2.The granting of significant bonuses if unrealistic profit targets are met may create an incentive to commit fraud, and

3.A control environment that is not effective may create an opportunity to commit fraud.

Answer: Option A