Question

Internal auditors have been advised to consider red flags to determine whether management is involved in a fraud. Which of the following does not represent a difficulty in using the red flags as fraud indicators?

A. The red flags literature is not well enough established to have a positive impact on internal auditing.
B. Some red flags are difficult to quantify or to evaluate.
C. Many common red flags are also associated with situations in which no fraud exists.
D. Red flag information is not gathered as a normal part of an engagement.

Answer 1

Option D, 'Red flag information is not gathered as a normal part of an engagement,' does not represent a difficulty in using red flags as fraud indicators, as gathering such information is a normal part of an auditor's duties.

Step-by-step explanation:

When considering red flags as indicators of fraud during internal auditing, the option that does not represent a difficulty is D. Red flag information is not gathered as a normal part of an engagement.

This statement is not accurate because gathering information about potential red flags is indeed a part of an auditor's normal duties. On the contrary.

Legitimate challenges in using red flags as fraud indicators include the lack of established literature (Option A), the difficulty in quantifying some red flags (Option B), and the possibility that red flags may be present in non-fraud situations (Option C).