Audit and Assurance Practice Exam

True or False: Not all fraud is instigated by management, and auditors should consider this when assessing fraud risk.

1. True

2. False

3. Only if indicators are present

4. Contingent on internal controls

The correct answer is: True

The statement is true because it recognizes that fraud can originate from various levels within an organization, not solely from management. While management does have the power to commit fraud, it's essential for auditors to be aware that other employees in different roles may also engage in fraudulent activities. Auditors must consider the possibility of fraud perpetrated by employees at all levels, including staff and operational personnel. This comprehensive perspective is crucial when assessing fraud risk because it enables auditors to design and implement effective audit procedures that address the full spectrum of potential fraud scenarios. Additionally, acknowledging that fraud can come from multiple sources emphasizes the importance of a robust control environment and proactive fraud detection measures, allowing auditors to maintain a thorough and skeptical mindset throughout the audit process. This approach ultimately helps in identifying and mitigating various fraud risks that could affect the financial statements and the overall integrity of the organization.