The auditing literature had traditionally classified fraud as either “defalcations” or “financial reporting fraud.”

Required

a. What is the difference between the two types of fraud?

b. Does the auditor’s responsibility for detecting fraud vary with the nature of the fraud committed?

c. Is a defalcation or financial reporting fraud more difficult to detect? Explain and give an example to support your conclusion.

d. Explain how the personnel committing each type of fraud may differ and how the motivations to commit the fraud might differ. Use the following format in formulating your answer:

Defalcation Financial Reporting Fraud

Personnel Most Likely to Commit the Fraud

Most Likely Motivation to Commit the Fraud

Process Used to Rationalize the Fraud