Question

Which one of the following is a true statement about the required fraud risk assessment discussion?

(1) The discussion about the susceptibility of the entity's financial statements to material misstatement must be held separately from the discussion about the susceptibility of the entity's financial statements to fraud.
(2) The discussion should involve all members who participate on the audit team, including the engagement partner.
(3) The discussion should include consideration of the risk of management override of controls.
(4) The fraud risk assessment discussion should occur during the overall review stage of the audit.

Answer 1

The correct statement is that the fraud risk assessment discussion should involve all members of the audit team, including the engagement partner, emphasizing the collaborative nature of identifying fraud risks.

Step-by-step explanation:

The correct statement about the required fraud risk assessment discussion is (2) The discussion should involve all members who participate on the audit team, including the engagement partner. It is crucial for all members of the audit team to be involved in the discussion about fraud risks in order to bring different perspectives and insights that can help in identifying potential areas where the financial statements may be susceptible to material misstatement due to fraud. Moreover, the discussion should include consideration of the risk of management override of controls as per statement (3), and this aspect is a significant component of the fraud risk assessment process.