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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error

At the audit of Orbit Foods, the audit senior finds that the sales director regularly says 'everyone adjusts the numbers at quarter end, and the company owes me this after years of unpaid overtime.' Which fraud triangle element does this attitude illustrate, and what is the appropriate audit response?

This is rationalisation, because the director justifies manipulation by pointing to peer practice and a sense of entitlement. The auditor should incorporate it into the fraud risk assessment, discuss it with the engagement team and heighten professional scepticism. It should not reduce testing or bypass communication with management and those charged with governance.

  1. ARationalisation; consider it when assessing management integrity and fraud risk and heighten professional scepticismCorrect
  2. BOpportunity; reduce substantive testing because the director is open about practices
  3. CIncentive; the matter is outside the scope of the audit and need not be recorded
  4. DRationalisation; report immediately to the external regulator without discussion with management or those charged with governance

Explanation

Justifying wrongdoing by claiming entitlement or that others do it is rationalisation. The auditor should factor this attitude into the fraud risk assessment, discuss within the team and maintain scepticism. Reducing testing would be inappropriate, and immediate regulator reporting skips the required steps of considering communication with management and those charged with governance and confidentiality duties.

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