Causes Of Fraudulent Financial Reporting

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Fraud can be one of the reasons as to why the business has led to shut down or to corporate collapses however, there are two types of risk factors that leads to fraudulent in the business where one of them is misappropriation of assets and another one is fraudulent in financial reporting. The main purpose of this project is to state some of the risk factors that are associated with the fraudulent financial reporting in a business and also state the responsibilities of the auditors when fraud is present in a business.

Duffield and Grabosky (2001), defined fraud as an act involving deceit such as intentional distortion of the truth or misrepresentation or concealment of a material fact to gain an unfair
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The auditor 's response to the assessment of the risks of material misstatement of the financial statements due to fraud is influenced by the nature and significance of the risks identified as being present and the entity 's programs and controls that address these identified risks.

The auditor responds to risks of material misstatement due to fraud in the following three ways. Firstly by responding that has an overall effect on how the audit is conducted that is, a response involving more general considerations apart from the specific procedures otherwise planned. The second one includes a response to identified risks involving the nature, timing, and extent of the auditing procedures to be performed. Thirdly it says that it involves a response that the performance of certain procedures to further address the risk of material misstatement due to fraud involving management override of controls, given the unpredictable ways in which such override could occur. In this respect, the auditor may have a greater concern about whether the accounting principles selected and policies adopted are being applied in an inappropriate manner to create a material misstatement of the financial
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They clearly require the auditor to plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated. Professional skepticism is closely interrelated with professional judgment. Professional scepticism is also important as it relates to the auditor 's consideration of fraud in the audit.
Auditors adhere to professional standards while performing financial statement audits. Those standards require that appropriate professional skepticism be applied in the exercise of professional judgment. The auditor’s professional scepticism throughout the audit is particularly important when considering the risks of material misstatement due to fraud.
ASA 240 states that the Auditor’s Responsibilities Relating to Fraud in an audit of a Financial Report places special emphasis on professional scepticism and requires the auditor to investigate further where conditions identified during the audit cause the auditor to believe that a document may not be authentic or may have been modified. Due professional care requires the auditor to exercise professional scepticism, because of the characteristics of fraud, the auditor 's exercise of professional skepticism is important when considering the risk
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