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

Auditor Mensah is assessing fraud risk at Orchid Retail. Under ISA 240, which presumption must she apply unless she can rebut it?

Under ISA 240 the auditor presumes there are fraud risks in revenue recognition and must address them unless the presumption can be rebutted and the reasons documented. Management override of controls is separately always treated as a risk. Other areas such as payroll are not presumed.

  1. AFraud risk in revenue recognition exists, so a presumed risk of fraud in revenue recognition must be addressedCorrect
  2. BFraud risk exists in all payroll transactions
  3. CFraud risk exists in all related party disclosures, whatever their nature
  4. DFraud risk exists only where the entity is listed

Explanation

ISA 240 requires the auditor to presume there are risks of fraud in revenue recognition and evaluate which types of revenue, transactions or assertions give rise to them; if the presumption is rebutted, the reasons must be documented. Management override of controls is the other risk that is always treated as present, and it cannot be rebutted. Payroll and related parties are not automatically presumed fraud risks.

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