Fraud consideration by auditors John Beasley is interviewing with public audit firms to become an auditor. John does not believe that fraud is a "big deal" in client organizations and argues that most individuals in management of companies are "honest

people". He believes that auditors are becoming too cynical. Describe your response to John's attitude and discuss the major types of fraud that occur in companies.

Audit firms have taken criticism for failing to discover material frauds. Auditors have a greater responsibility to plan the audit to consider and detect fraud. This is accomplished partially by the auditor's use of professional skepticism. Professional skepticism is not necessarily being cynical; rather, it is performing an audit with a questioning mind. It means that the auditors will obtain persuasive evidence to corroborate management responses to inquiries and to increase the sufficiency of substantive audit evidence. Professional skepticism is exhibited in the auditor's assumption that honesty in people is not a given. Auditors must not only go beyond the evidence in front of them, they must have the mindset of the possibility of fraud in all financial statement engagements.
It must also be mentioned that John's perspective will likely not be acceptable to the audit firm because his attitude toward fraud is not rigorous enough for the profession.
John must realize that, quite often, fraud in organizations usually takes place in one of three areas:
Asset misappropriation such as theft and misuse of assets.
Fraudulent financial reporting such as the overstatement of certain assets and revenues and the understatement of certain liabilities and expenses.