ExpertHard1 markMultiple Choice
CPA · Question 17 · Area II: Risk Assessment
During the audit of a nonissuer, the auditor identifies a risk of management override of controls. According to AU-C 240, which of the following procedures is REQUIRED to address this specific fraud risk?
During the audit of a nonissuer, the auditor identifies a risk of management override of controls. According to AU-C 240, which of the following procedures is REQUIRED to address this specific fraud risk?
Answer options:
A.
Conduct interviews with the audit committee regarding their oversight of the fraud risk assessment process.
B.
Review accounting estimates for biases and evaluate whether the circumstances represent a risk of material misstatement due to fraud.
C.
Increase the sample size for all substantive tests of details.
D.
Perform a surprise inventory count at a location not previously announced.
How to approach this question
Memorize the 3 mandatory procedures for Management Override: JEs, Estimates, Unusual Transactions.
Full Answer
B.Review accounting estimates for biases and evaluate whether the circumstances represent a risk of material misstatement due to fraud.✓ Correct
Review accounting estimates for biases and evaluate whether the circumstances represent a risk of material misstatement due to fraud.
AU-C 240 requires the auditor to review accounting estimates for biases that could result in material misstatement due to fraud, including a retrospective review of significant management estimates reflected in the financial statements of the prior year.
Common mistakes
Selecting general fraud responses instead of the specific mandatory ones.
Practice the full CPA AUD Practice Exam 4
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