What are the risk factors that relate to fraudulent financial reporting? What types of common schemes should auditors look for?
What will be an ideal response?
Rick factors:
(1) Management's characteristics and influence over the control environment. This relates to management's attitudes and style, situational pressures and the financial reporting process.
(2) Industry condition. A company in a declining industry or with key customers experiencing business failures is at greater risk for fraud that one in a stable industry.
(3) Operating characteristics and financial stability. This pertains to the nature of the entity and complexity of its transactions.
Common schemes include improper revenue recognition, treatment of sales and asset valuation.
PTS: 1
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