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Chapter 4 Homework

Chapter 4 Homework - Chapter 4 Detecting Fraud in Financial...

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Chapter 4: Detecting Fraud in Financial Reporting Homework 2. What two fieldwork stages gather audit evidence? The internal control testing phase The account balance testing phase 3. Define these terms: Materiality is the measure of whether something is significant enough to change an investor’s investment decision. Control risk is risk that a material error in the balance or transaction class will not be prevented or detected. Inherent risk is the risk that an account or transactions contain material misstatements before the effects of the controls Detection risk is the risk that audit procedures will not turn up material error when it exists. 4. What does Lee Seidler say about external auditors? What overcomes the assumption that separation of duties prevents fraud? Lee Seidler says that external auditors have a poor record of uncovering fraud: “No major fraud has ever been discovered by auditors.” He believes that auditors will continue to miss fraud because much of their work is predicated on the assumption that separation of duties prevents fraud.
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