Page 125 - Auditing Standards

As of December 15, 2017

.64 When a company has multiple locations or business units, the auditor should identify significant
accounts and disclosures and their relevant assertions based on the consolidated financial statements.

Factors Relevant to Identifying Fraud Risks

.65 The auditor should evaluate whether the information gathered from the risk assessment procedures

indicates that one or more fraud risk factors are present and should be taken into account in identifying and
assessing fraud risks. Fraud risk factors are events or conditions that indicate (1) an incentive or pressure to
perpetrate fraud, (2) an opportunity to carry out the fraud, or (3) an attitude or rationalization that justifies the

fraudulent action. Fraud risk factors do not necessarily indicate the existence of fraud; however, they often
are present in circumstances in which fraud exists. Examples of fraud risk factors related to fraudulent
financial reporting and misappropriation of assets are listed in AS 2401.85. These illustrative risk factors are
classified based on the three conditions discussed in this paragraph, which generally are present when fraud

exists.

Note: The factors listed in AS 2401.85 cover a broad range of situations and are only examples.
Accordingly, the auditor might identify additional or different fraud risk factors.

.66 All three conditions discussed in the preceding paragraph are not required to be observed or evident

to conclude that a fraud risk exists. The auditor might conclude that a fraud risk exists even when only one of
these three conditions is present.

.67 Consideration of the Risk of Omitted, Incomplete, or Inaccurate Disclosures. The auditor's evaluation

of fraud risk factors in accordance with paragraph .65 should include evaluation of how fraud could be
perpetrated or concealed by presenting incomplete or inaccurate disclosures or by omitting disclosures that
are necessary for the financial statements to be presented fairly in conformity with the applicable financial

reporting framework.

.68 Presumption of Fraud Risk Involving Improper Revenue Recognition. The auditor should presume that
there is a fraud risk involving improper revenue recognition and evaluate which types of revenue, revenue

transactions, or assertions may give rise to such risks.

.69 Consideration of the Risk of Management Override of Controls. The auditor's identification of fraud

risks should include the risk of management override of controls.

Note: Controls over management override are important to effective internal control over financial

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