Consideration of Fraud in a Financial Statement Audit

Abstract

The objectives of the auditor under AU-C Section 240 are to: identify and assess the risks of material misstatement of the financial statements due to fraud; obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and respond appropriately to fraud or suspected fraud identified during the audit. In every audit, the auditor is obligated to plan and perform the audit to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatements, whether caused by error or by fraud. As defined in AU-C Section 200, professional skepticism is an attitude that includes a questioning mind and critical assessment of audit evidence. This chapter presents examples of risk factors, reproduced with permission from AU-C Section 240 Appendix A, relating to misstatements arising from fraudulent financial reporting, and relating to misstatements arising from misappropriation of assets.