ExpertHard1 markMultiple Choice
CPA · Question 14 · Area II: Risk Assessment
An auditor is using audit data analytics (ADA) to identify high-risk journal entries in the audit of a nonissuer. The auditor is specifically looking for entries that might indicate management override of controls. Which of the following characteristics would be MOST indicative of such entries?
An auditor is using audit data analytics (ADA) to identify high-risk journal entries in the audit of a nonissuer. The auditor is specifically looking for entries that might indicate management override of controls. Which of the following characteristics would be MOST indicative of such entries?
Answer options:
A.
Entries made to unrelated, unusual, or seldom-used accounts.
B.
Recurring monthly closing entries recorded by the controller.
C.
Entries processed outside of normal business hours, by upper management, with round numbers or lacking descriptions.
D.
Entries that correspond exactly to the underlying subsidiary ledger totals.
How to approach this question
Think like a fraudster. When do you commit fraud? Late at night. Who does it? Senior people. How? Round numbers (estimates) or no description (hiding).
Full Answer
C.Entries processed outside of normal business hours, by upper management, with round numbers or lacking descriptions.✓ Correct
AU-C 240 identifies characteristics of fraudulent journal entries: made to unrelated/unusual accounts, made by individuals who typically don't make entries, recorded at the end of the period, made late at night or on weekends, containing round numbers, or lacking descriptions.
Common mistakes
Focusing on just one trait (unusual accounts) rather than the combination of behavioral traits (timing, user, description).
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