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Chapter 11
2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder
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Learning Objective 1
Define fraud and distinguish
between fraudulent financial
reporting and misappropriation
of assets.
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Types of Fraud
Fraudulent financial reporting
Misappropriation of assets
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Learning Objective 2
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Opportunities
Attitudes/Rationalization
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Learning Objective 3
Understand the auditors
responsibility for assessing
the risk of fraud and detecting
material misstatements due to
fraud.
2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder
11 - 12
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Professional Skepticism
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Inquiries of
management
Risk
factors
Analytical
procedures
Other
information
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Procedures
Specific risks
Reasons
Results
Other conditions
Nature of communications
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Learning Objective 4
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Organizational Factors
Contributing to Risk of Fraud
Collusion between
employees and
third parties
Inadequate
internal
controls
Management
override of
internal controls
2003
1998
48
31
33
39
58
59
31
36
36
1994
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Organizational Factors
Contributing to Risk of Fraud
Collusion between
employees and
management
Lack of control
over management
be directors
Ineffective or
nonexistent ethics or
compliance program
2003
1998
15
19
23
12
11
6
10
8
7
1994
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Learning Objective 5
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Learning Objective 6
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49
22
40
26
36
13
20
13
12
3
1998
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2003
12
9
11
11
9
6
7
3
1998
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Learning Objective 7
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Internal controls
Internal audit
Notification
by employee
2003
1998
1994
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Accident
Anonymous tip
Notification
by customer
2003
1998
1994
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19%
16%
8%
16%
11%
15%
12%
4%
5%
Notification
by vendor
External audit
2003
1998
1994
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Informational inquiry
Assessment inquiry
Interrogative inquiry
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Evaluating responses
Listening techniques
Observing behavioral cues
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End of Chapter 11
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