Question

Do not use the book definition, explain with your examples. Book definition answers will not be accepted. 1. Please give two examples of your own for the fraudulent financial reporting using the fraud triangle. (15 points) 2. Please give two examples of your own for the misappropriation of assets using the fraud triangle. (15 points) 3. Define “acceptable audit risk”, “inherent risk”, “control risk”, and “planned detection risk”. 4. Define the term "related party." How do related party transactions affect the fair presentation of the financial statements?

Answer 1

Ans.1.Opportunity refers to circumstances that allow fraud to occur. In the fraud triangle, it is the only component that a company exercises complete control over. Examples that provide opportunities for committing fraud include:

1. Weak internal controls

Internal controls are processes and procedures implemented to ensure the integrity of accounting and financial information. Weak internal controls such as poor separation of duties, lack of supervision, and poor documentation processes give rise to opportunities for fraud.

2. Poor tone at the top

Tone at the top refers to upper management and board of directors’ commitment towards being ethical, showing integrity, and being honest. A poor tone at the top results in a company that is m

Ans-2

Asset misappropriation can be defined as using company or client assets for personal gain. ... Although the average loss of each fraud case is low, asset misappropriation is the most common ty

Ans-3

Definition:Acceptable audit risk

Audit risk is the risk that auditors issued the incorrect audit opinion to the audited financial

statements.

Control risk is the risk that the company's own internal controls will be unable to prevent, detect, or correct material misstatements or errors that are present in the financial statements.

Planned detection risk is the risk that audit evidence will fail to detect misstatements that exceed a tolerable amount. When an auditor reduces the planned detection risk, this will r

equire the collection of more evidence.

Ans-4

Accounting and disclosure of related party relationships and transactions comply with the requirements of the applicable financial reporting framework, and. The effects of the related party relationships and transactions prevent the financial statements to achieve fair presentation.