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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments

A firm is asked to investigate suspected misappropriation of inventory at a client's warehouse and to report to the audit committee. Which approach is most appropriate at the outset of the investigation?

The firm should first agree terms of reference, secure the relevant records and electronic data, and keep the investigation confidential to need-to-know people. This protects the evidence and avoids alerting the suspect. Interviewing the suspect early or broadcasting suspicions would risk destroying evidence and harming any later action.

  1. AInterview the suspected employee first to obtain a confession before any evidence is secured
  2. BAgree terms of reference, secure relevant records and electronic data, and restrict knowledge of the investigation to those who need to knowCorrect
  3. CDiscuss the suspicions with all warehouse staff to find who has information
  4. DIssue an audit opinion on the inventory balance to confirm whether fraud occurred

Explanation

An investigation should begin with clear terms of reference and preservation of evidence, with confidentiality to avoid tipping off the suspect or destroying evidence. Interviewing the suspect early risks losing evidence and prejudicing any later action. Wide discussion breaches confidentiality, and an audit opinion is not the purpose of an investigation.

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