There are many fraud risk factors indicated in the dialogue. Among the fraud risk factors are the following: * Two individuals, Saul and the store manager, appear to dominate management without any compensating controls. * The supplier does not have any support for the transactions, nor do they have a phone number or an address where they can be reached. The oral confirmation by phone call could have been an insider posing as the vendor. * No one is getting bonuses. Even though it’s a new company, management generally doesn’t operate without bonuses – it’s possible they are getting incentives from other sources. * It is a new company and new companies are always susceptible to errors and fraud until solid controls and history is established. * The audit partner doesn’t seem interested in following up on Yosef’s suspicions. He could be careless, could be involved, or may just have a different sense of the overall picture than Yosef.

b. Waseem has many misconceptions regarding the consideration of fraud in the audit of the financial statements that are contained in the dialogue. Among Kent’s misconceptions are the following: * Waseem is not concerned about the suspicious vendor. * Waseem seems more interested in keeping the client than offending the client by inquiring about the suspicious vendor. c. SAS 99 requires that auditors document the following matters related to the auditor’s consideration of material misstatements due to fraud: * The discussion among engagement team personnel in planning the audit about the susceptibility of the entity’s financial statements to material fraud. * Procedures performed to obtain information necessary to identify and assess the risks of material fraud. * Specific risks of material fraud