Risk Assessment Flashcards

Under AU-C 240, which fraud risk must auditors presume exists unless rebutted?

Answer: Improper revenue recognition

AU-C 240 requires a rebuttable presumption that revenue recognition carries a fraud risk.

Which fraud risk can never be rebutted and must be addressed in every audit under AU-C 240?

Answer: Risk of management override of controls

Management override of controls is present in all entities and must always be addressed.

In the fraud triangle, a CFO facing personal bankruptcy most directly represents which element?

Answer: Pressure

Financial distress is a classic incentive or pressure to commit fraud.

The fraud diamond model adds which fourth element to the fraud triangle?

Answer: Capability

Wolfe and Hermanson added capability, the personal traits and skills needed to commit fraud.

Under COSO 2013, which principle specifically requires organizations to consider the potential for fraud in assessing risks?

Answer: Principle 8

COSO Principle 8 states the organization considers the potential for fraud in assessing risks.

Which factor most increases inherent risk for an account balance?

Answer: Significant management estimates and judgment

Accounts relying on subjective estimates are more susceptible to misstatement before controls are considered.

A residual fraud risk is best defined as the risk that:

Answer: Remains after considering the effectiveness of anti-fraud controls

Residual risk is the inherent risk that remains after controls are applied.