3. (10 marks) Fraud. The following quote is from The Financial Times article, After Wirecard: is it time to audit the auditors? Jonathan Ford & Tabby Kinder July 3 2020.

renewed focus on internal controls, going concern and fraud. The vast majority of business failures are not the fault of auditor, but when the audit quality is a contributory factor, the problem generally involves these three fundamental areas.

Michael Izza, Chief Executive, Institute of Chartered Accountants, England/Wales

Additional Resources: Our course resources on Wirecard, our textbook (3.4) and CAS 240.

1. Discuss the general concept of fraud.
2. What fraud red flags were noted in the Wirecard case? Was the fraud a financial reporting fraud or misappropriation of assets classification?
3. Which party (the auditors Wirecard management governance) do you feel contributed the most to the fraud? What role, if any, does the audit have in locating fraud?

(10 marks) 1. Audit expectation Gap. Audit Engagement Letters

1. Explain the three (3) components of the audit expectation gap.
2. Discuss the role the audit engagement letter plays to reduce the audit expectation gap. Hint: Review CAS 230 and figure 2.5.
3. In reference to the CPA article, Can the auditors close the great expectation gap for good?

Karyn Brooks, FCPA Corporate Director and audit committee member; Former Senior Vice-President and Controller, BCE and Bell, makes the following comment,

Karyn Brooks: I would argue that the expectation gap is really the fault of people not reading the auditors report. The report is pretty clear about what auditors do and dont do. Then it comes down to the analysts expectationthey just want the auditors to audit a whole bunch of stuff that they dont know.

Discuss your opinion on this quote.