The Audit Risk Model and Inherent Risk Assessment
This is the probability that an auditor expresses an inappropriate opinion on financial statements that contain material misstatements due to errors or fraud.
What is Audit Risk?
The COSO framework categorizes internal control into these five components.
What are:
1. Control environment,
2. Risk assessment,
3. Control activities,
4. Information and communication, and
5. Monitoring?
There are often red flags and warnings signs when an employee has committed fraud. Name 2.
What are:
1. Unexplained wealth or lifestyle changes,
2. Reluctance to take vacations (fear of being discovered),
3. Unusual defensiveness when questioned about financial matters, and
4. Excessive control over financial records without oversight.
The audit risk model is calculated in this way (i.e., the formula).
What is:
Audit Risk = Inherent Risk x Control Risk x Detection Risk
?
With respect to internal control over financial reporting, management is responsible for these items related to establishing and maintaining an effective internal control system. Name 2.
What are:
1. Assessing risks,
2. Establishing control activities,
3. Maintaining documentation,
4. Creating a control environment, and
5. Monitoring internal controls.
Preventing employee fraud is a complex task requiring a combination of strong internal controls, ethical leadership, and employee engagement. These are key techniques outlined in "Auditing and Assurance Services (9E)" by Louwers et al.
What are:
1. Establish a Strong Control Environment,
2. Implement Effective Internal Controls,
3. Use Fraud Detection Mechanisms,
4. Address Employee Pressures and Rationalization, and
5. Regularly Update and Enforce Policies?
In this "session" audit teams discuss potential fraud risks and areas of concern.
What is a fraud brainstorming session?
With respect to internal control over financial reporting, the external auditor is responsible for these items related to establishing and maintaining an effective internal control system. Name 2.
What are:
1. Understanding Internal Control
2. Assessing Control Risk,
3. Testing Controls, and
4. Reporting Findings?
Because cash is highly liquid and easily misappropriated, strong controls over cash receipts and disbursements are essential. These represent relevant controls over cash disbursements. Name 2.
What are:
1. Authorized signatures,
2. Sequentially numbered checks,
3. Voucher system,
4. Timely bank reconciliations, and
5. Review of electronic payments.
In this type of fraud, the financial statements are intentionally misstatemented or important information is omitted to deceive financial statement users.
What is fraudulent financial reporting?
Theese are the three phases that management uses to assess control risk.
What are
* Phase 1: Understanding and documenting internal controls,
* Phase 2: Assessing Control Risk, and
* Phase 3: Indentifying and testing controls.
The goal of this procedure is to compare and explain the differences between the balances in a bank statement and a client's general ledger.
What is a bank reconciliation?
When it comes to fraud, professional auditing standars require auditors to do these three things.
What are:
1. Identify fraud risk factors,
2. Assess the risk of material misstatement due to fraud in financial statements, and
3. Perform audit procedures tailored to the identified fraud risks, such as increasing the scrutiny of management estimates or performing extended procedures like surprise inventory counts?
During a financial statement audit, auditors are required to communicate internal control deficiencies to those charged with governance, such as the audit committee and key management personnel. Deficiencies can be classified into these three levels based on severity.
What are:
1. Internal Control Deficiency,
2. Significant Deficiency, and
3. Material Weakness.
This person was former comptroller of Dixon, IL, stole $53 million by creating false invoices and diverting cash into a personal account.
Who is Rita Crundwell?