The auditor’s responsibilities for detecting fraud are to perform risk assessment procedures, such as inquiries of management and others, analytical procedures, and observation and inspection. Then the auditor must develop tests to determine any misstatements in the account balances or transactions. In order to identify the risks of material misstatements, the auditor must discuss with the audit team in regards to the risks of material statement due to fraud, inquire of management about the risks of fraud and how it is addressed, consideration of any unusual or unexpected relationships when performing analytical procedures, and understand the client’s period-end closing process and investigate unexpected period-end adjustments.
The three conditions that are generally present when fraud occurs are management or employees have an incentive or are under pressure to commit the fraud, an opportunity to carry out the fraud, and those who commit the fraud are able to rationalize committing a fraud. In addition, individuals possess an attitude that allows them to intentionally commit the fraudulent act.
The objective of brainstorming meet is to talk about the entity’s financial statements’ susceptibility to material misstatements. In depth, their objectives are to share insights about the entity, its environment, and the entity’s business risks, discuss how and when the entity is susceptible to fraud, and emphasize professional skepticism while performing the audit.
The documents needed for identified risk factors are extensive. Documentation of the audit team members, auditor’s risk assessment procedures, fraud risk assessment, audit responses to the identified risk, discussions among the engagement team, when and how the discussions occurred, decisions made, the steps performed to gather the entity’s business and environment information, additional audit procedures and