Document ID: chunk:federal_register_of_legislation:F2020L00252:body:0:p14
Version: federal_register_of_legislation:F2020L00252
Segment Type: other
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Character Range: 39285–42390

non standard journal entries may not be subject to the same level of internal nature and extent of controls as those journal entries used on a recurring basis to record transactions such as monthly sales, purchases and cash disbursements.

54.               Existing Appendix 1 is amended to read as follows:

Examples of Fraud Risk Factors

    The fraud risk factors identified in this Appendix are examples of such factors that may be faced by auditors in a broad range of situations.  Separately presented are examples relating to the two types of fraud relevant to the auditor's consideration – that is, fraudulent financial reporting and misappropriation of assets.  For each of these types of fraud, the risk factors are further classified based on the three conditions generally present when material misstatements due to fraud occur: (a) incentives/pressures, (b) opportunities, and (c) attitudes/rationalisations.  Although the risk factors cover a broad range of situations, they are only examples and, accordingly, the auditor may identify additional or different risk factors.  Not all of these examples are relevant in all circumstances, and some may be of greater or lesser significance in entities of different size or with different ownership characteristics or circumstances.  Also, the order of the examples of risk factors provided is not intended to reflect their relative importance or frequency of occurrence.

    Fraud risk factors may relate to incentives or pressures, or opportunities, that arise from conditions that create susceptibility to misstatement before consideration of controls (i.e., the inherent risk). Such factors are inherent risk factors, insofar as they affect inherent risk, and may be due to management bias. Fraud risk factors related to opportunities may also arise from other identified inherent risk factors (for example, complexity or uncertainty may create opportunities that result in susceptibility to misstatement due to fraud). Fraud risk factors related to opportunities may also relate to conditions within the entity's system of internal control, such as limitations or deficiencies in the entity's internal control that create such opportunities. Fraud risk factors related to attitudes or rationalisations may arise, in particular, from limitations or deficiencies in the entity's control environment.

    Risk Factors Relating to Misstatements Arising from Fraudulent Financial Reporting

    …

    Incentives/Pressures

…

    Opportunities

The nature of the industry or the entity's operations provides opportunities to engage in fraudulent financial reporting that can arise from the following:

…

The monitoring of management is not effective as a result of the following:

…

There is a complex or unstable organisational structure, as evidenced by the following:

…

    Internal control components are deficient Deficiencies in internal control as a result of the following:

           * Inadequate monitoring of controls process to monitor the entity's system of internal control, including automated controls and controls over