Auditors' Fraud-Related Responsibilities

The fraud-related responsibilities and reporting duties of internal, external and government auditors, and materiality.

5 minutes 5 Questions

In the Certified Fraud Examiner (CFE) body of knowledge, auditors' fraud-related responsibilities refer to the obligations external and internal auditors have regarding the prevention, detection, and reporting of fraud, as distinguished from the deeper investigative role of fraud examiners. Extern…

Concepts covered
External Audit Fraud ResponsibilitiesInternal, External and Government AuditorsGovernment Audit Fraud ResponsibilitiesFinancial Statement MaterialityInternal Audit Fraud Responsibilities
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CFE - Auditors' Fraud-Related Responsibilities Example Questions

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Question 1

When identifying fraud risks in a financial statement audit, the external auditor ordinarily presumes that a risk of material misstatement due to fraud exists in inventory valuation.

Correct Answer: False

External auditing standards on fraud have the auditor presume a fraud risk in revenue recognition, not inventory valuation. The auditor may rebut this presumption only with documented reasons. Inventory valuation can be identified as a fraud risk in a particular engagement, but it is not the account area the standards presume to carry fraud risk.

Question 2

Under internal auditing standards, which of the following BEST describes the level of fraud knowledge that internal auditors are expected to possess?

Correct Answer: Enough to evaluate fraud risk and how the organization manages it

IIA Standard 1210.A2 requires internal auditors to have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by the organization.
The standards expressly state that internal auditors are not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud. Internal auditors do not certify that financial statements are free of fraud, since no audit can provide absolute assurance. Detecting every material fraud during each engagement is unrealistic, because due professional care does not guarantee that all fraud will be found.
Key concept: internal auditor proficiency and fraud knowledge requirements under IIA standards.

Question 3

Under internal auditing standards, internal auditors are expected to possess the same level of fraud expertise as a person whose primary responsibility is detecting and investigating fraud.

Correct Answer: False

Internal auditing standards require internal auditors to have enough knowledge to evaluate the risk of fraud and how the organization manages it. They are expressly not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud. Specialized fraud investigation is typically referred to fraud examiners or other qualified specialists.

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