The audit of financial statements includes the initial approach of addressing fraud.How must an auditor address fraud in the planning stage?
A)The auditor must test for fraud in the planning stage by sampling accounts.
B)The auditor must consider the likelihood of fraud existing in the company in the planning stage.
C)The auditor must realize that most people are honest and not automatically assume that fraud exists when planning the audit.
D)The auditor must not be aggressive in its initial approach to fraud as trust may be lost by the client.

Question

Quizplus · Accepted Answer

According to auditing standards, an auditor must consider the risk of fraud existing in the company during the planning stage. This includes reviewing relevant information such as the company's history, industry, internal controls, and financial performance to identify areas of potential fraud risk. Testing for fraud in the planning stage is not necessary and may not be effective in fraud detection. Assuming that fraud does not exist without proper evaluation is also not appropriate. Being aggressive in the approach to fraud risks is necessary to identify potential fraud schemes and develop appropriate audit procedures. Trust should not be a consideration when evaluating the risk of fraud.

The Audit of Financial Statements Includes the Initial Approach of Addressing