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CHAPTER 4:

Management Fraud and Audit Risk

Audit Risk: Risk that an auditor will give unqualified opinion on a misstated financial Statement

MGMT Fraud Risk: Risk that mgmt. will intentionally misstate financial statement

Errors: UNINTENTIONAL mis-statment or omissions of amt. or disclosures in F/S

Categories of Errors/ Fraud

Invalid transactions are recorded

Valid transactions are omitted from the accounts

Unauthorized transactions are executed and recorded

transaction amounts are inaccurate

Transactions are classified in wrong accounts

Transaction account and posting is incorrect

Transaction are recorded in wrong period

Risk factors of Fraudulent Financial Reporting:

1. MGMT's characteristics and influence

Mgmt's motivation to

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