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

Kestrel Logistics has a long-serving financial controller who has never taken a holiday of more than two days, has sole access to the bank reconciliation process and the payment system, and recently told colleagues the company 'owes' him given his unpaid overtime and a frozen salary. Which combination of fraud triangle elements is evidenced, and what is the most appropriate audit response?

Sole control of reconciliations and payments gives opportunity, and the belief that the company owes him is rationalisation. The auditor should assess a misappropriation risk and respond with unpredictable, independent procedures such as obtaining bank confirmations directly and reperforming the reconciliations, rather than relying on explanations.

1. AOpportunity (sole control of reconciliation and payments) and rationalisation (sense of being owed); assess a risk of misappropriation and perform unpredictable procedures such as independently obtaining bank confirmations and reperforming reconciliations.Correct
2. BIncentive only; no response is needed because the amounts are likely immaterial.
3. CRationalisation only; the auditor should report the comments to the police immediately.
4. DOpportunity only; the auditor should rely on the controller's explanations and perform no further work.