Question

Auditors will assess the risk of fraud by considering _______.

1) fraud risk factors that may not be present, such as pressure and opportunities for management to commit fraud
2) fraud risk factors that may be present, such as pressure and opportunities for management to commit fraud
3) fraud risk factors that may be present, such as a lack of pressure and opportunities for management to commit fraud
4) management's opinion and statements on whether fraud is occurring or not

Answer 1

Auditors assess the risk of fraud by considering fraud risk factors such as pressure and opportunities for management to commit fraud, while maintaining professional skepticism regardless of management's statements.

Step-by-step explanation:

Auditors will assess the risk of fraud by considering fraud risk factors that may be present, such as pressure and opportunities for management to commit fraud. It is the presence of these risk factors, such as incentives or pressures on management and opportunities to perpetrate fraud, that are scrutinized during the audit. Evaluation of fraud risks is a critical component of the audit process, and auditors are required to assess these risks to determine the nature, timing, and extent of audit procedures required.

Understanding these factors allows auditors to design appropriate responses to the risks of material misstatement due to fraud. Despite opinions or statements made by management, auditors must maintain professional skepticism and rely on evidence and audit testing to reveal any potential irregularities. Additionally, auditors take into consideration any other factors that affect the outcome, which are highly dependent on the specific situation under review.