What is meant the term ‗fraud‘? Give four examples of fraudulent activities.

Auditing and Assurance Revision Questions and Answers

a) Fraud refers to the intentional misrepresentation of financial information one or more individuals amongst management, employees and third parties.

Fraud involves: –

1. Manipulation, falsification or alteration of records or documents. For example where an employee alters the amount payable to a supplier as per the invoice with the objective of obtaining a financial gain.
2. Misappropriation of assets. For example where cash collections are misappropriated and the amount is not recorded.
3. Suppression/omission of the effects of transactions from records/documents. For example failure to recognize liabilities in the accounting records.
4. Recording and transactions without substance.
5. Misappropriation of acting policies.
6. Reporting to management where any frauds have been detected or suspected.
7. Providing recommendations through the management letter on ways of strengthening the system to minimize the potential frauds.

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