Question

Which of the following statements is TRUE?

A. External auditors are usually specifically trained to detect fraud
B. Audits of books and records rarely discover frauds
C. Less than 5 percent of all frauds are detected by auditors
D. The presence of auditors provides a major deterrent effect

Answer 1

The presence of auditors provides a major deterrent effect against fraud, as their role adds a layer of scrutiny to financial practices, discouraging fraudulent behavior.

Step-by-step explanation:

The statement from the choices provided that is TRUE is that the presence of auditors provides a major deterrent effect. Although external auditors are trained to understand and critically assess financial statements, their main aim is not specifically fraud detection but rather ensuring that the financial records present a true and fair view of the company's financial condition. Audits may not regularly discover frauds because fraud can be sophisticated and well-concealed. However, it is inaccurate to claim that less than 5 percent of all frauds are detected by auditors without specific statistical evidence. It is well-recognized that the possibility of an audit, whether by external or internal auditors, can serve to deter fraudulent behavior due to increased perceived risk of detection.