Fraud Risk Assessment Audit Procedures

Fraud Risk Assessment Audit Procedures

The auditor will perform the following audit procedure for risk assessment of fraud.

1.    Risk Assessment of Management

The auditor will inquire from the management about their risk assessment of fraud and effective control for prevention of misstatements, because the fraud prevention is primary responsibility of the management. If management has not made any risk assessment, this is an indication that poor control may in the organization due to lack of interest on management in risk assessment.

2.    Inquiry from Management About Fraud

Management can provide a detail information about the possibility of risk due to the fraud , especially expected fraud where employee are involved, however, management inquiry does not provide information about management frauds.

3.    Inquiry from Employee & Others

Auditor can get information from the employees, internal auditor, legal counsel and others about the possibilities of misstatement due to fraud.

4.    Inquiry from those responsible for Governance

Governance is responsible for monitoring and overseeing the performance of management and therefore auditor can get useful information about the competency and integrity of the management by making the inquiry from those who are responsible for Governance. It would also help auditor to understand the role and extent of governance activities.

5.    Other information

Other information may also provide auditor useful information about the risk of material misstatement due to fraud. These other information includes client retention documentation, experience with the client, other engagement performed for client.

6.    Existence of Risk Factors

There may be incentive or pressure to commit the fraud, this incentive or pressure is known as Risk factor for fraud. Example of risk factor include , bank requirement for financing, salary increment based on the financial performance etc.