The following excerpt from the Identifying Fraudulent Financial Transactions CPE course contains checklists summarizing questions for assessing fraud exposure in a corporate setting.

Financial statement fraud, like all other types of fraud, involves intentional deceit and attempted concealment. Financial statement fraud may be concealed through falsified documentation, including forgery. Financial statement fraud may also be concealed through collusion among management, employees, or third parties.

Unfortunately, fraud is rarely seen. Rather, fraud symptoms, indicators, or red flags are usually observed. Because these symptoms can also be caused by other, legitimate factors, the presence of fraud symptoms does not always indicate that fraud exists. For example, a document may be missing, a general ledger may be out of balance, or an analytical relationship may not make sense. However, these conditions may be the result of circumstances other than fraud. Documents may have been legitimately lost. The general ledger may be out of balance because of an unintentional accounting error; and unexpected analytical relationships may be the result of unrecognized changes in underlying economic factors. Caution must be exercised even when reports of alleged fraud are received, because the person providing the tip or complaint may be mistaken or may be motivated to make false allegations.

Fraud symptoms also cannot easily be ranked in order of importance or combined into effective predictive models. The significance of red flags varies widely. Some of these factors will be present when no fraud exists; alternatively, a smaller number may exist where fraud is being perpetrated.

It can even be hard to prove fraud once it is suspected. Without a confession, a number of repeated, similar fraudulent acts (so fraud can be inferred from a pattern), or obviously forged documents, it is very difficult to convict someone of fraudulent behavior. Because of the difficulty of detecting and proving fraud, accountants and auditors must exercise extreme care when conducting audits, performing fraud examinations, trying to quantify fraud, or performing other types of fraud-related engagements.

A four-step process to help identify financial statement fraud can be found in Identifying Fraudulent Financial Transactions, Chapter 3, "A Framework for Detecting Financial Statement Fraud."