Problem
Auditors should plan and perform their audits to provide reasonable assurance of detecting material misstatements in financial statements, including those resulting from fraud.
Task
I. Distinguish between fraudulent financial reporting and misappropriation of assets.
II. Describe the three fundamental conditions necessary for the commission of fraud. Provide an illustration of these three conditions for a case of fraudulent financial reporting.
III. Describe the three ways in which the auditors may respond to fraud risks in an audit.