Question

The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a

part of:
A) tests of controls.
B) tests of transactions.
C) understanding the entity's internal control.
D) the assessment of whether to accept the audit engagement

Answer 1

The initial evaluation of the likelihood of material employee fraud by an auditor is part of understanding the entity's internal control, which is key to designing the audit approach.

Step-by-step explanation:

The auditor's evaluation of the likelihood of material employee fraud is normally done initially as part of understanding the entity's internal control. This stage is crucial because it helps auditors design the nature, timing, and extent of further audit procedures. By gaining a thorough understanding of the internal controls, auditors can assess the risks of material misstatement due to fraud, as well as identify any potential weaknesses within the company's control activities.