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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Other current issues

During the audit of Zenith Retail Ltd, the engagement partner notes that management has overridden several controls when posting year-end journals. Under ISA 240 (as revised thinking on fraud responsibilities), how should the auditor treat the risk of management override of controls?

Management override of controls is always a significant risk in every audit under ISA 240 and cannot be rebutted, whatever the auditor's experience of management. The auditor must test journals, review estimates for bias and assess unusual transactions, regardless of whether the entity is listed.

  1. AAs a significant risk present in every audit, regardless of the auditor's past experience with managementCorrect
  2. BAs a risk that can be rebutted if management has been honest in prior years
  3. CAs a risk relevant only where the entity is listed
  4. DAs a risk that is addressed solely through inquiries of the audit committee

Explanation

ISA 240 requires the auditor to treat the risk of management override as a significant risk in every audit, and it cannot be rebutted. Procedures include testing journals, reviewing estimates for bias and evaluating the business rationale for unusual transactions. Rebuttal based on past honesty is not permitted, unlike the presumed revenue recognition fraud risk.

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