The following quote is from “Six Common Myths about Fraud,” Journal of Accountancy (February 1990, 82-88), by Joseph Wells: Opportunity almost always relates to position. Managers are no more or less honest than employees—they just have more opportunity to commit bigger thefts. In McKinley’s case, it was a common pattern: excessive leverage, marital problems, and too much control. Yet had the internal auditor not fallen for the first myth (most people will not commit fraud), he might have at least known whom to look at, if not where to look. Considering there are almost countless ways to defeat internal controls, knowing whom to suspect of fraud is critical to its detection.

Required:

a. Is it possible to conduct an audit efficiently if the auditor suspects that everyone, particularly management, may be capable of conducting a fraud? Explain.

b. How would knowledge of the fraud risk factors discussed in the chapter assist the auditor in dealing with the myth that most people will not commit fraud?

c. How would the auditor go about gathering information on the “common pattern” the author refers to in the excerpt, that is, excessive leverage, marital problems, too much control? How should such information, if gathered, be documented in the audit work papers?