Please discuss a situation you have observed in your employment, read about onli
ID: 2355981 • Letter: P
Question
Please discuss a situation you have observed in your employment, read about online, or heard on the news that involved a misstatement arising from fraudulent financial reporting. Describe the specific situation. If you were the auditor of such company, prepare a brief assessment of the future risk of misstatements and design of future audit procedures (refer to page 201-210 in the text for an explanation). I need help on how to write a brief risk assessment... are there any auditors or accounting majors out there?Explanation / Answer
future risk of misstatements and design of future audit
Risk factors that relate to misstatements arising from misappropriation of assets are also classified according to the three conditions generally present when fraud exists: incentives/pressures, opportunities, and attitudes/rationalizations. Some of the risk factors related to misstatements arising from fraudulent financial reporting also may be present when misstatements arising from misappropriation of assets occur. For example, ineffective monitoring of management and weaknesses in internal control may be present when misstatements due to either fraudulent financial reporting or misappropriation of assets exist. The following are examples of risk factors related to misstatements arising from misappropriation of assets.
Incentives/Pressures
Opportunities
Certain characteristics or circumstances may increase the susceptibility of assets to misappropriation.
3. Attitudes/Rationalizations
Risk factors reflective of employee attitudes/rationalizations that allow them to justify misappropriations of assets, are generally not susceptible to observation by the auditor. Nevertheless, the auditor who becomes aware of the existence of such information should consider it in identifying the risks of material misstatement arising from misappropriation of assets. For example, auditors may become aware of the following attitudes or behavior of employees who have access to assets susceptible to misappropriation:
Management incentive plans may be contingent upon achieving targets relating only to certain accounts or selected activities of the entity, even though the related accounts or activities may not be material to the entity as a whole.