An auditor may consider a number of factors when identifying opportunities to commit fraud. The following represent areas that have often been associated with frauds.
Situations Often Associated with Fraud
1. Related-party transactions
2. Industry dominance
3. Numerous subjective accounting judgments
4. Ineffective monitoring mechanisms
5. Complex organizational structure
6. Simple transactions made complex
7. Complex transactions
8. Significant deficiencies in internal control
Required
For each of the situations listed, indicate
a. How the situation presents an opportunity to commit fraud.
b. Whether the fraud is more likely to be a defalcation or financial reporting fraud.
c. The nature of the fraud that is likely to occur.
d. Audit procedures that would detect the fraud if it occurred and was material.