- 15 Marks
AAA – Nov 2011 – L3 – SB – Q1 – Application of Audit and Assurance Principles
Evaluate the steps for identifying and responding to fraud risk during audit planning.
Question
Fela Idaewor is the auditor for Matty Co. Ltd, a rapidly expanding retail business based in Lekki. This is her first year as the audit manager. During her engagement planning, she observed multiple risk factors, such as the company’s strong interest in maintaining earnings and share prices, unrealistic financial forecasts, and high reliance on debt financing for expansion. Additionally, there were strong indications that fraud might have been committed by top management.
Required
(a) What should Idaewor do about the possibility of fraud at the planning stage? (7 Marks)
(b) What documentation is required for identifying risk factors? (5 Marks)
(c) If Idaewor has evidence suggesting fraud, what are her communication responsibilities to management? (3 Marks)
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