.02

The following is an overview of the organization and content of this section:

• Description and characteristics of fraud. This section describes fraud and its characteristics. (See paragraphs .05 through .12.)
• The importance of exercising professional skepticism. This section discusses the need for auditors to exercise professional skepticism when considering the possibility that a material misstatement due to fraud could be present. (See paragraph .13.)
• Discussion among engagement personnel regarding the risks of material misstatement due to fraud. This section requires, as part of planning the audit, that there be a discussion among the audit team members to consider how and where the entity's financial statements might be susceptible to material misstatement due to fraud and to reinforce the importance of adopting an appropriate mindset of professional skepticism. (See paragraphs .14 through .18.)
• Obtaining the information needed to identify risks of material misstatement due to fraud. This section requires the auditor to gather information necessary to identify risks of material misstatement due to fraud, by
  1. Inquiring of management and others within the entity about the risks of fraud. (See paragraphs .20 through .27.)
  2. Considering the results of the analytical procedures performed in planning the audit. (See paragraphs .28 through .30.)
  3. Considering fraud risk factors. (See paragraphs .31 through .33, and the Appendix, "Examples of Fraud Risk Factors" [paragraph .85].)
  4. Considering certain other information. (See paragraph .34.)
• Identifying risks that may result in a material misstatement due to fraud. This section requires the auditor to use the information gathered to identify risks that may result in a material misstatement due to fraud. (See paragraphs .35 through .42.)
• Assessing the identified risks after taking into account an evaluation of the entity's programs and controls. This section requires the auditor to evaluate the entity's programs and controls that address the identified risks of material misstatement due to fraud, and to assess the risks taking into account this evaluation. (See paragraphs .43 through .45.)
• Responding to the results of the assessment. This section emphasizes that the auditor's response to the risks of material misstatement due to fraud involves the application of professional skepticism when gathering and evaluating audit evidence. (See paragraph .46 through .49.) The section requires the auditor to respond to the results of the risk assessment in three ways:
  1. A response that has an overall effect on how the audit is conducted, that is, a response involving more general considerations apart from the specific procedures otherwise planned. (See paragraph .50.)
  2. A response to identified risks that involves the nature, timing, and extent of the auditing procedures to be performed. (See paragraphs .51 through .56.)
  3. A response involving the performance of certain procedures to further address the risk of material misstatement due to fraud involving management override of controls. (See paragraphs .57 through .67.)
• Evaluating audit evidence. This section requires the auditor to assess the risks of material misstatement due to fraud throughout the audit and to evaluate at the completion of the audit whether the accumulated results of auditing procedures and other observations affect the assessment. (See paragraphs .68 through .74.) It also requires the auditor to consider whether identified misstatements may be indicative of fraud and, if so, directs the auditor to evaluate their implications. (See paragraphs .75 through .78.)
• Communicating about fraud to management, the audit committee, and others. This section provides guidance regarding the auditor's communications about fraud to management, the audit committee, and others. (See paragraphs .79 through .82.)
• Documenting the auditor's consideration of fraud. This section describes related documentation requirements. (See paragraph .83.)