Question

An entity has failed to provide documentation for a newly acquired material asset and informs its auditors that the documentation is lost. According to generally accepted government auditing standards, what would this situation typically indicate to the auditors?

Answer 1

Answer:

The answer is a heightened risk of fraud

Explanation:

When this (the scenario in the question) happens, it is a red flag and a fraud is likely to have happened and the auditor should treat this as a high risk.

Management intention might be to conceal a material information inorder to pepetrate fraud or the truth might be that the documents for the acquisition is truly lost.

The auditor should also consider the materiality of this event when forming their opinion on the financial statement

In a nutshell, this case poses a risk of fraud.