Question

Which of the following best exemplifies the fraud risk assessment process?

1) Perpetrators of fraud will try to hide their activities from auditors. However, one thing history tells us is that fraud never successfully maintains. Hence, auditors should just be patient and wait until the fraud is revealed.
2) Auditors should directly inquire of audit committee members regarding their role in fraud prevention and detection. However, if the client has an internal audit function, auditors do not need to make inquiries about fraud risk assessment of the internal auditors, given that the responsibility for preventing and detecting fraud rests with client.
3) Auditors should directly inquire of the audit committee members regarding their role in fraud prevention and detection. If the client has an internal audit function, auditors should also make inquiries about fraud risk assessment of the internal auditors.
4) "Detection" refers to the use of controls and procedures aimed at avoiding a fraud. "Prevention" refers to the use of controls and procedures aimed at uncovering a fraud should one occur.

Answer 1

The best example of the fraud risk assessment process is option 3) Auditors should directly inquire of the audit committee members regarding their role in fraud prevention and detection. If the client has an internal audit function, auditors should also make inquiries about fraud risk assessment of the internal auditors.

Step-by-step explanation:

The best example of the fraud risk assessment process is option 3) Auditors should directly inquire of the audit committee members regarding their role in fraud prevention and detection. If the client has an internal audit function, auditors should also make inquiries about fraud risk assessment of the internal auditors.

This option demonstrates the importance of auditors actively engaging with the audit committee and internal auditors to assess the risk of fraud. By directly inquiring and gathering information, auditors can gain insights into the effectiveness of fraud prevention and detection measures.

This proactive approach allows auditors to identify potential vulnerabilities and weaknesses in the client's internal control systems, enabling them to develop appropriate audit procedures to address fraud risks.