Examples Of Fraud Risk Factors

3509 Words Nov 24th, 2014 15 Pages
Examples of Fraud Risk Factors
The fraud risk factors identified in this Appendix are examples of such factors that may be faced by auditors in a broad range of situations. Separately presented are examples relating to the two types of fraud relevant to the auditor’s consideration–that is, fraudulent financial reporting and misappropriation of assets. For each of these types of fraud, the risk factors are further classified based on the three conditions generally present when material misstatements due to fraud occur: (a) incentives/pressures, (b) opportunities, and (c) attitudes/rationalizations. Although the risk factors cover a broad range of situations, they are only examples and, accordingly, the auditor may identify additional or
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 Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate.
 Significant, unusual, or highly complex transactions, especially those close to period end that pose difficult “substance over form” questions.
 Significant operations located or conducted across international borders in jurisdictions where differing business environments and cultures exist.
 Use of business intermediaries for which there appears to be no clear business justification.
 Significant bank accounts or subsidiary or branch operations in tax-haven jurisdictions for which there appears to be no clear business justification.

The monitoring of management is not effective as a result of the following:
 Domination of management by a single person or small group (in a non owner-managed business) without compensating controls.

Oversight by those charged with governance over the financial reporting process and internal control is not effective.
There is a complex or unstable organizational structure, as evidenced by the following:
 Difficulty in determining the organization or individuals that have controlling interest in the entity.
 Overly complex organizational structure
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