Skip to content

ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

During the audit of Brightwell Co, the auditor identifies that management has overridden controls to record unsupported journal entries near the year end that increase revenue. Under ISA 240, how should the auditor treat the risk of management override of controls?

Under ISA 240, management override of controls is a presumed significant risk of fraud in every audit and cannot be rebutted. Management can override controls directly, so the auditor must always test journal entries, review accounting estimates for bias and assess the rationale for unusual transactions, regardless of the entity's controls or listing status.

  1. AAs a significant risk of fraud that is presumed present in every audit and cannot be rebuttedCorrect
  2. BAs a risk that can be rebutted if the entity has a strong internal audit function
  3. CAs a risk relevant only where the entity is listed
  4. DAs a risk of error rather than fraud unless the entity admits intent

Explanation

ISA 240 states that management is in a unique position to perpetrate fraud by overriding controls, so the risk is treated as a significant risk present in all audits and cannot be rebutted. Procedures include testing journals, reviewing estimates for bias and evaluating the business rationale for unusual transactions. Strong internal audit does not remove the presumption.

Did you get it right without looking?

One question tells you little. A timed set on Professional and ethical developments shows your real accuracy, how long you take and where you lose marks.

Practise Professional and ethical developmentsFree diagnostic mock

More Professional and ethical developments questions