ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error
Auditor Priya has identified a significant risk of material misstatement due to fraud in the inventory valuation of Dunmore Foods. Which response best reflects ISA 240 requirements for the overall and specific audit approach?
The best response is to use more experienced, well-supervised staff, add unpredictability to the selection of procedures, and design tailored procedures for the identified risk. Reliance on prior-year controls or analytical procedures alone is not adequate for a significant fraud risk.
- AAssign more experienced staff, incorporate an element of unpredictability in procedure selection, and design procedures specific to the assessed risksCorrect
- BRely on the prior year's tests of controls since the control environment was previously effective
- CLimit work to analytical procedures because fraud is hard to detect by substantive testing
- DDelegate the area to the most junior team members to avoid bias from prior knowledge
Explanation
ISA 240 requires overall responses such as assigning appropriate staff and supervision, evaluating the entity's accounting policies, and incorporating unpredictability in the nature, timing and extent of procedures, plus specific procedures responding to the assessed risks. Relying on past controls testing or analytical procedures alone is insufficient for a significant fraud risk, and junior staff would be inappropriate.
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