Recently there have been a significant number of highly publicized cases of management fraud involving the misstatement of financial statements. Although most client managements possess unquestioned integrity, a very small number, given sufficient incentive and opportunity, may be predisposed to fraudulently misstate reported financial conditions and operating results.

REQUIRED
a. What distinguishes management fraud from other types of fraud?
b. What are an auditor’s responsibilities, under generally accepted auditing standards, to detect management fraud?
c. What are the characteristics of management fraud that an auditor should consider in order to fulfill the auditor’s responsibilities for detecting management fraud under generally accepted auditing standards?
d. Three factors that heighten an auditor’s concern about the existence of management fraud include (1) an intended public placement of securities in the near future, (2) management compensation dependent on operating results, and (3) a weak internal control environment evidenced by lack of concern for basic controls and disregard of the auditor’s recommendations. What other factors should heighten an auditor’s concern about the existence of management fraud?