Worksheet — Business and fraud risk identification

511
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Entity

Period ended

Objective: To provide additional guidance on business and fraud risk identification. First identify sources of risk through understanding the entity (Form 510). This worksheet provides some additional sources of business and fraud risk that may be considered along with some typical control procedures. Cross reference the additional risk factors identified to Forms 520/522 (or their equivalent) where the risks can be assessed. This form does not include risks that relate to a particular industry or to a particular engagement. Note: Many business risks also create opportunity for fraud to occur (such as a new accounting system). Record such risks on both Form 520 and Form 522. 1. Corporate governance structure Consider corporate values, direction, major decisions, spending and internal control systems.

Business risk factors Poorly skilled or inexperienced directors No audit committee Lack of board members who are independent of management No strategic business plan No code of conduct Infrequent board meetings Poorly skilled or inexperienced audit committee Limited or no internal audit function Management dominated by a single person or a small group Inadequate policies and internal controls over major decisions and expenditures Management roles and responsibilities not clear (no senior management job descriptions) High turnover in board, management or accounting personnel

Fraud risk factors No process exists to establish and monitor ethical conduct Ineffective/inappropriate communication by management to support the entity’s values or ethics Little attention paid by board (or audit committee) to financial reporting and internal control Poor control of tangible assets Allegations of fraud or non-compliance against the entity or management are not properly