Accounting Q&A · Auditing · Topic 13
Practise fraud risks, management override and audit responses. Try each answer before revealing it.
Worked example
Year-end manual revenue entries were posted by a senior manager. Inspect approvals, contracts, timing and business rationale. Expand testing and communicate significant concerns.
Core concepts
1. What should you know about fraud?
An intentional act involving deception to obtain an unjust or illegal advantage.
2. What should you know about error?
An unintentional misstatement or omission.
3. What should you know about fraudulent financial reporting?
Intentional misstatement or omission intended to deceive users.
4. What should you know about misappropriation of assets?
Theft or improper use of assets, sometimes concealed through records.
5. What should you know about management override?
Management bypassing controls to manipulate records or transactions.
6. What should you know about fraud risk factors?
Conditions often associated with pressure, opportunity or rationalisation.
7. What should you know about professional scepticism?
A questioning mindset and critical assessment of evidence.
8. What should you know about journal entry testing?
Testing selected entries and adjustments to address override risks.
9. What should you know about retrospective review?
Looking back at prior estimates to identify indications of bias.
10. What should you know about governance communication?
Prompt communication of appropriate matters to those charged with governance.
Case 1
Year-end manual revenue entries were posted by a senior manager.
11. Which audit concept is central here?
Management override.
12. What is the main objective?
Assess whether entries reflect valid transactions.
13. What evidence or procedure would you use?
Inspect approvals, contracts, timing and business rationale.
14. What limitation should you consider?
Seniority does not establish legitimacy.
15. What should happen next?
Expand testing and communicate significant concerns.
Case 2
A payroll amount was duplicated after a system migration.
16. Which audit concept is central here?
Possible error.
17. What is the main objective?
Determine cause and scope before deciding whether intent is involved.
18. What evidence or procedure would you use?
Trace system logs and compare the old and new files.
19. What limitation should you consider?
A duplicate alone does not establish fraud.
20. What should happen next?
Quantify the misstatement and assess control deficiencies.
Case 3
Management pressures staff to meet a sales target before year-end.
21. Which audit concept is central here?
Fraud risk in revenue recognition.
22. What is the main objective?
Identify susceptible revenue streams and assertions.
23. What evidence or procedure would you use?
Test cut-off, returns, contracts and unusual entries.
24. What limitation should you consider?
Inquiry alone cannot resolve a significant fraud risk.
25. What should happen next?
Revise procedures and document findings.
Professional standards reference. For statutory duties, confirm the rules in the relevant jurisdiction.