Question

Which of the following is not a required source of information for the auditors' assessment of fraud risk?

		A. Discussion among audit team members.
		B. Fraud risk factors.
		C. Results of tests of controls.
		D. Inquiry of management and others.

Answer 1

A. Discussion among the audit team members.

Explanation:

Audit is basically independent examination of books of accounts, financial statements and financial position of an entity. An auditor need to carry out an audit in accordance with Generally Accepted Auditing Standards (GAAS), following are covered as per the stated SAS:

B. Fraud Risk factor: SAS 109 (Understanding the Entity and its Environment and Assessing the Risks of Material Misstatements) states that an auditor shall assess the risk of material misstatement and the same shall be responded in accordance with SAS 110 and reporting being done for residuary risk.

C. Results of tests of controls: Results of test of controls is a crucial input to an audit as it suggests if required controls (Internal, preventive, detective and corrective controls) are in place or there is need of extending scope of audit.

D. Inquiry of management and others: SAS 85 (Management representation) lines out the importance of managemment representation. Management looks into day to day operations of an entity and thus an auditor has to consider their inputs, not only to verify, but to understand the process and other things as well. In case, there lies a risk of material mistatement, auditor can use substantive procedures and carry out inquiry with management and other parties to the trasaction(s).

Summary : Internal discussion within the audit team has to be summarized in the auditor's report once an opinion on the financial statements is formulated, it is not an input, but output of an audit examination.