Question

Internal auditors have a responsibility for helping to deter fraud. Which of the following best describes how this responsibility is usually met?

1) By evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk.
2) By testing for fraud in every engagement and following up as appropriate.
3) By assisting in the design of control systems to prevent fraud.
4) By coordinating with security personnel and law enforcement agencies in the investigation of possible frauds.

Answer 1

Internal auditors deter fraud by evaluating the effectiveness of controls rather than designing systems, directly testing for fraud in all engagements, or coordinating with law enforcement in investigations.

Step-by-step explanation:

Internal auditors help to deter fraud primarily by evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk. This involves reviewing the systems and processes in place within an organization to prevent fraud and ensuring that they are operating effectively.

Auditors are not typically involved in the design of control systems, but they may suggest improvements or enhancements to the existing controls based on their findings.

Moreover, while they may coordinate with others in the case of an investigation, their primary role is preventative through assessment and recommendation rather than direct involvement in security operations or law enforcement. Internal auditors have a responsibility for helping to deter fraud, and this responsibility is usually met by evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk.

By assessing the control systems in place, auditors can identify weaknesses or vulnerabilities that may be exploited by fraudsters. By understanding the potential risks, auditors can then recommend and assist in the design of control systems to prevent fraud.