Explain each of the following Responsibility of the Auditor: 1. An auditor in conducting an audit in accordance with standards obtains reasonable assurance that the financial statement taken as a whole are free from material misstatement whether caused by error or fraud 2. Owing to the inherent limitation of an audit, there is an unavoidable risk that some material misstatement of the financial statements will not be detected even though the audit is properly planned and performed in accordance with standards 3. The risk of not detecting material misstatement resulting from fraud is higher than the risk of not detecting material misstatement from error because fraud may involve sophisticated and carefully organized schemes designed to conceal it 4. The risk of the auditor not detecting a material misstatement resulting from management fraud is greater than for employee fraud, because management is frequently in a position to directly or indirectly manipulate accounting records and present fraudulent financial information or override control procedures designed to prevent similar frauds. 5. When obtaining a reasonable assurance, the auditor is responsible for maintaining an attitude of professional skepticism throughout the audit, considering the potential for management override of controls and recognizing the fact that audit procedures that are effective for detecting error may not have been effective in detecting fraud 6. PSA 315 requires discussion among the engagement team and a determination of the engagement partner of which matters are to be communicated to those team members not involved in discussion. This discussion shall place particular emphasis on how and where the entity financial statements may be susceptible to material misstatement due to fraud. Risk Assessment Procedures: 1. The auditor shall inquire of management about: *Management assessment of the risk that the financial statement may be materially misstated due to fraud, including its nature, extent and frequency of the assessment *Management process for identifying and responding to the risk in the entity, including any specific risk of fraud that management has identified or that have been brought to its attention, or classes of transaction, account balances or disclosure for which a risk of fraud is likely to exist *Management communication, if any, to those charged with governance regarding its processes for identifying and responding to the risk of fraud *Management communication, if any to employees regarding its views on business practices and ethical behavior 2. The auditor shall make inquiries of management and others within the entity as appropriate, to determine whether they have knowledge of any actual, suspected or alleged fraud activity with the entity 3. The auditor shall obtain an understanding of how those charged with governance exercise oversight of management process for identifying and responding to the risk of fraud in the entity and the internal control that management has established to mitigate the risk 4. The auditor shall evaluate whether the information obtained from the other risk assessment procedures and related activities performed indicates that one or more fraud risk factors are present. Responses to the Risk due to Fraud: 1. The auditor shall determine overall responses to address the assessed risk of material misstatement due to fraud at the financial statement level and shall design and perform further audit procedures whose nature, timing and extent are responsive to the assessed risk at assertion level 2. In determining overall responses, the auditor shall *Assign and supervise personnel taking account of the knowledge, skill and ability of the individuals to be given significant engagement responsibilities and the auditor assessment of the risk of material misstatement due to fraud for the engagement *Evaluate whether the selection and application of accounting policies by the entity, particularly those related to subjective measurements and complex transactions may be indicative of fraudulent financial reporting resulting from management effort to manage earnings *Incorporate an element of unpredictability in the selection of the nature, timing and extent of audit procedures