Case Studies in Not-for-Profit Accounting and Auditing

Chapter 3 CONSIDERATION OF FRAUD

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

• Identify the requirements regarding the auditor's consideration of fraud.
• Determine the types of fraud that could exist.
• Identify what risks are presumed to be fraud risks.
• Identify audit procedures to address presumed fraud risks.

TECHNICAL BACKGROUND INFORMATION

AU-C section 240, Consideration of Fraud in a Financial Statement Audit, establishes the requirements for audit procedures and provides application and explanatory information regarding the consideration of fraud. Those requirements address the following topics:

• Professional skepticism
• Discussion among the engagement team
• Risk assessment procedures and related activities
• Identification and assessment of risks of material misstatement due to fraud
• Responses to assessed risks of material misstatement due to fraud
• Evaluation of audit evidence
• Auditor unable to continue the engagement
• Communications to management and those charged with governance
• Communications to regulatory and enforcement authorities
• Documentation

Misstatements in financial statements due to fraud arise from fraudulentfinancial reporting or misappropriation of assets. Fraudulent financial reporting (lying or presenting misleading information in the financial statements) is usually for the benefit of the organization, although it can be for the benefit of an individual if compensation or other personal benefits are linked ...