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CS Professional · Internal and Forensic Audit · Fraud Detecting Techniques

In a fraud risk assessment for Narmada Steels Ltd, the risk of management override is rated high. Which response is most appropriate because this risk is present in every entity and cannot be eliminated by ordinary controls?

The appropriate response is to test unusual journal entries, review significant estimates for bias and examine unusual transactions outside the normal course. Management override can defeat ordinary controls, so approvals and management representations are insufficient. Targeted procedures on entries and estimates are the standard way to address it.

  1. ARely solely on the company's approved delegation of authority
  2. BTest unusual journal entries, review significant estimates for bias and examine unusual transactions outside normal businessCorrect
  3. CReduce the sample size of routine transactions
  4. DObtain a management representation that no fraud exists

Explanation

Management can bypass controls, so audit standards expect procedures on manual and late journal entries, bias in estimates and significant unusual transactions. Reliance on delegation or representations fails because management itself may be the override source. Reducing samples does nothing to address override.

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