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Case 1 - Exercise 1 Abernethy and Chapman Fraud Risk Factors

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Case 1 - Exercise 1
Abernethy and Chapman
Fraud Risk Factors

Client: Lakeside Company
Prepared by:
Date: 09/12/2015

List the fraud risk factors that the CPA firm might encounter if they accept this audit engagement. Be sure to include a discussion of all items that will probably require special attention during the audit. For each of these fraud risk factors, indicate how the auditor should follow up on each potential problem if the engagement is accepted. Use the following format:

|Fraud Risk Factors |Auditor Follow Up |
|Managements have incentive to overstate income with cash |If the engagement is accepted, the auditor should perform testing |
|bonuses tie to revenue. |and review in all areas within the balance sheet, income statement, |
| |and other financial statements. |
|Rogers has an incentive to hire Abernethy and Chapman as their|If the engagement is accepted, Abernethy and Chapman should consider|
|auditor, because they audit the primary bank that he does |all independence and related party issues that may arise. By |
|business with. This is a fraud risk factor because it may |checking the primary bank for Rogers, Abernethy and Chapman may not |
|cause an independency issue with the auditor and client. |accept the engagement due to the possibility of independence issues.|
|Lack of expertise by Abernethy and Chapman may be another risk|Abernethy and Chapman should consider hiring a skilled personnel or |
|fraud factor for Rogers. Manager hopes that the auditors are |training their staff to be proficient in auditing the industry. |
|not skilled enough to find the fraud.…...

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