Case 11-23 Part a

AUDIT RISK

Case11-23

Parta

Theabove case may increase the risk of fraud, this is because thepressure in one of the major factor triggering fraud. Overworking thecontroller even in evenings, weekends and holidays may cause aninfluence to commit a fraudulent action. Management fraud that isoften known as fraudulent financial reporting may be experienced inthe firm. This may result due to intentional misstatement or omissionof disclosure of the actual amount of the assets in the firm. In thiscase, assets and revenues are estimated based on subjectivejudgements that may create an opportunity for fraudulent entries.Auditing Standards provides that the audit process should rely onevidence and supporting documents must be availed to confirm thetransactions (Alvin et. al, 2010).

Theability of the company to meet the exchange listing and the debtcovenant also act as incentive/pressure to increase the fraud risk.The threat of high competition may also exact high pressure forfraudulent actions and misappropriation of assets by the managementdue to the influence they have. Operating across international boardswhere business environment`s varying may also increase the risk offraud due to lack of consistency in the financial reporting process.

Partb

Fraudcondition

1=&gtOverworking company’s controller – Incentives/Pressure

3=&gtAssets and revenue estimation – Opportunities

4=&gtExchange listing requirement and covenant – Incentives/Pressure

5=&gtDegree of competition and market saturation – Incentives/Pressure

6=&gtInternational operations across boarder – Opportunities

9=&gtAttemptsby management to justify marginal or inappropriate accounting on thebasis of materiality – Attitude/Rationalism

Fromthe above analysis, the auditor is held responsible for investigatingthe frauds that might have resulted from the risk identified. Theauditor should design an audit plan to trace any materialmisstatements in the financial statements (Alvin et al, 2010).

Reference

AlvinA., Elder J. and Beasley S. (2010). Auditing and Assurance Services14thEdition. Upper Saddle River: London