Why is the risk of not detecting a material misstatement resulting from fraud higher than the risk of not detecting material misstatements resulting from error?

Why is the risk of not detecting a material misstatement resulting from fraud higher than the risk of not detecting material misstatements resulting from error?

The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting a material misstatement resulting from error because fraud may involve sophisticated and carefully organized schemes designed to conceal it, such as forgery, deliberate failure to record transactions, or …

What are the advantages of using analytical procedures as substantive tests?

Due to their nature, substantive analytical procedures can often provide evidence for multiple assertions, identify audit issues that may not be apparent from more detailed work, and direct the auditor’s attention to areas requiring further investigation.

Why are analytical procedures of limited use in the audit of the cash balance?

Why are analytical procedures of limited use in the audit of the cash balance? -Because of the residual nature of cash, it does not have a predictable relationship to other financial statement accounts. A cutoff bank statement is obtained to test the reconciling items included in the bank reconciliation.

What is the responsibility of the Auditor when it comes to fraud in a Financial Statement audit?

01, the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error.

What causes fraud to be likely to occur?

The concept states that there are three components which, together, lead to fraudulent behavior. They are (1) a perceived un-shareable financial need (motive/pressure), (2) a perceived opportunity to commit fraud, and (3) the rationalization of committing the fraud.

What increases risk of material misstatement?

Factors that can increase the risk of material misstatement on a financial statement level include: Managerial incompetence. Poor oversight by the board of directors. Inadequate accounting systems and records.

Why are analytical procedures important?

Analytical procedures are used for the following purposes: To assist the auditor in planning the nature, timing, and extent of other auditing procedures. As a substantive test to obtain evidential matter about particular assertions related to account balances or classes of transactions.

What is the primary benefit of performing analytical procedures?

The primary advantage of analytical procedures is that they are very cost effective and they are also reasonably effective at identifying accounts that may contain unintentional misstatements.

Why should the major purpose of performing analytical procedures in internal audits be obtained audit evidence?

The purpose of applying analytical procedures in planning the audit is to assist in planning the nature, timing, and extent of auditing procedures that will be used to obtain evidential matter for specific account balances or classes of transactions.

What is the primary purpose of analytical procedures performed during the completion phase of the audit?

What is the primary purpose of analytical procedures performed during the completion phase of an audit? The primary purposes is to give the auditor one last objective look at the financial statements and see if there are any possible places for misstatements.

What is the role of auditor in detecting the errors and frauds?

In the audit planning process, the auditor should assess the risk of material misstatement in the financial statements of fraud and error and ask the management of the audited entity for information about any fraud or material error that has been discovered.

Why do auditors fail to detect fraud?

Insufficient or Inadequate training; • Lack knowledge of fraud schemes; and • Undue trust in management. They perceive GAAS audits as not sufficiently focused on detecting fraud, as the primary institutional inhibitor of fraud detection. Auditors are not effectively trained to detect or recognize fraud.