When auditing with "fraud awareness," auditors should especially notice and review employee activities under which of these conditions?
A) The company always estimates the inventory but never takes a complete physical count.
B) The petty cash box is always locked in the desk of the custodian.
C) Management has published a company code of ethics and sends frequent communication newsletters about it.
D) The board of directors reviews and approves all investment transactions.

Question

Quizplus · Accepted Answer

When a company always estimates inventory without taking a complete physical count, it creates an opportunity for fraud where employees can overstate the value of the inventory to deceive auditors and other stakeholders. Therefore, auditors should pay special attention to this activity and perform detailed testing to ensure the accuracy of the inventory value. The other options do not necessarily provide significant indicators for fraud awareness.

When Auditing with "Fraud Awareness," Auditors Should Especially Notice and Review