Fraud

​

Fraud and Responding to Fraud Case Example: ABC Manufacturing Company

Context

Despite having established internal controls, ABC Manufacturing Company, like any other entity, is susceptible to the risk of fraud. This risk may arise from fraudulent financial reporting, misappropriation of assets, or other illegal acts that could materially affect the financial statements.

Audit Objective

To assess the risks of material misstatement in ABC Manufacturing Company’s financial statements due to fraud and to determine appropriate audit responses to address these risks effectively.

Types of Audit Evidence and Documentation for Fraud and Responding to Fraud

1. Fraud Risk Assessment

• Case: Perform a fraud risk assessment to identify potential fraud risk factors related to financial reporting and misappropriation of assets. Consider factors such as management override of controls, incentives for fraudulent reporting, and areas susceptible to fraud.

• Documentation: Document the fraud risk assessment process, including identified fraud risk factors, the reasons these areas are susceptible to fraud, and any indicators of fraud risk.

2. Inquiries of Management and Others

• Case: Inquire of management, the audit committee, and employees about their