Management fraud (e. g., fraudulent financial reporting) is a relatively rare event. However, when it does occur, the frauds (e. g., Enron and WorldCom) can have a significant effect on shareholders, employees, and other parties. AU 240, Consideration of Fraud in a Financial Statement Audit, provides the relevant guidance for auditors.

Required:

a. What is the auditor’s responsibility for detecting fraud?

b. Describe the three conditions that are generally present when fraud occurs.

c. What are the objectives of the “brainstorming” meeting that is held among the engagement team members?

d. What is the required documentation for identified risk factors?