Fraud Risk

One-minute revision

• Fraud triangle: incentive/pressure, opportunity, rationalization
• Fraudulent financial reporting (management) = larger; misappropriation (employees) = more frequent
• Required every audit: brainstorming, inquiries, fraud risk factors, management override procedures (journal entries, estimate bias/retrospective review, unusual transactions)
• Revenue recognition fraud presumption is rebuttable (document it); management override presumption is not
• Fraud involving management → always report to those charged with governance, regardless of amount