Final answer:
Auditors should understand and evaluate management's fraud risk controls, design appropriate audit responses, and assess control effectiveness. It is unrealistic to expect that management can eliminate the risk, as controls are meant to mitigate risk. So, the correct options are a), c) and d).
Step-by-step explanation:
For any inherent risks identified by the auditors that involve the possibility of fraud, the steps an auditor should take include a combination of understanding management's controls, designing an appropriate response to the risk, and evaluating the effectiveness of management's controls. While it is management's responsibility to establish programs and controls to mitigate fraud risk, auditors must assess whether these controls are suitable relative to the level of risk and are operating effectively.
• Understand management's controls: Auditors need to gain an understanding of the programs and controls that have been put in place by management to address the risk of fraud. This includes both preventive and detective controls.
• Design an appropriate response: Auditors should design audit procedures that are responsive to the assessed risks. This will often involve enhancing audit procedures to be more unpredictable and incorporating elements of unpredictability in the selection of items to test.
• Evaluate the effectiveness of controls: Determining whether the controls are effectively working is a fundamental part of an auditor's responsibilities. They must evaluate and test the design and operational effectiveness of management's controls.
Determining that management has established programs and controls to eliminate the risk is not realistic; controls can rarely eliminate the risk of fraud. Management's programs and controls are meant to mitigate, not eliminate, risk. Therefore, the correct options that apply here are: to design an appropriate response to the risk, understand the programs and controls established by management to control the risk, and determine whether the controls established by management are working effectively.