During the course of audit of Limca Ltd., CA Ranjan observed frequent changes in accounting estimates of receivables, delays in providing…

The given situation presents several indications that may alert an auditor to possible fraud, which include the following: (i) Discrepancies in Accounting Records including non-recording or partial recording or incorrect recording or delayed recording of amounts, misclassifications, etc. (ii) Conflicting or missing evidence including missing documents, altered documents, significant unexplained items in reconciliations, discrepancies between entity's records and confirmations received etc. (iii) Unacceptable management responses such as denial of access to records/facilities/employees, undue time pressure to resolve complex issues, unusual delays in providing requested information, denial for use of Computer Assisted Audit Techniques, unwillingness to address identified deficiencies in internal control etc. (iv) Other indications such as Accounting Policies in variance with Industry Norms, Frequent changes in accounting estimates etc. In the given case, the altered documentation, discrepancies in records, and management's delayed cooperation clearly point to above mentioned fraud indicators. Fraud Diamond: Four Elements of Fraud are: Incentive: I want to, or have a need to, commit fraud.Opportunity: There is a weakness in the system that the right person could exploit. Fraud is possible.Rationalization: I have convinced myself that this fraudulent behavior is worth the risks.Capability: I have the necessary traits and abilities to be the right person to pull it off. I have recognized this particular fraud opportunity and can turn it into reality.