Types of Misstatements Relevant to Auditor's Consideration of Fraud in a Financial Statement Audit

C

In a financial statement audit, the auditor is responsible for detecting fraud, which includes misstatements arising from fraudulent financial reporting or misappropriation of assets. The types of misstatements that are relevant to the auditor's consideration of fraud in a financial statement audit are A and B, which are misstatements arising from fraudulent financial reporting and misappropriation of assets, respectively.

A. Misstatements arising from fraudulent financial reporting:

This refers to intentional misstatements or omissions made by the management of a company to deceive the users of financial statements. Fraudulent financial reporting can be achieved through various means, such as manipulation, falsification, or alteration of accounting records, misapplication of accounting policies, or intentional misrepresentation of facts. Examples of fraudulent financial reporting may include recording fictitious revenue, understating expenses, or overvaluing assets.

B. Misstatements arising from misappropriations of assets:

This refers to the theft or misuse of an entity's assets by employees or other parties. Misappropriation of assets can take many forms, such as embezzlement, theft, or misuse of company resources. Examples of misappropriation of assets may include stealing cash or inventory, using company assets for personal purposes, or manipulating accounting records to conceal the theft of assets.

Therefore, the correct answer is C. Both A and B. The auditor must consider both types of misstatements to properly evaluate the risk of fraud in a financial statement audit and to design appropriate audit procedures to detect any potential fraud.