ACFE Updated CFE-Fraud-Prevention-and-Deterrence Exam Questions and Answers by kyla

 ISSAI Standards:

The International Standards of Supreme Audit Institutions (ISSAI) require government auditors to consider fraud and abuse during financial audits. Abuse includes improper use of authority or resources, which may not always meet the legal threshold of fraud but still warrants attention.

 Expanded Audit Scope:

Unlike private-sector audits, public-sector audits often have broader objectives, requiring vigilance for misuse of public funds and resources.

 Why A is Correct:

Staying alert to abuse ensures comprehensive accountability, aligning with ISSAI ' s objectives​​.

The G20/OECD Principles include:

“Guidance regarding board responsibilities, including establishing appropriate board structures, assigning clear responsibilities, and ensuring board accountability.”

Comprehensive and Detailed in Depth Explanation:

ISA 240 (The Auditor ' s Responsibilities Relating to Fraud in an Audit of Financial Statements) outlines the auditor ' s responsibility to assess and respond to the risk of material misstatement due to fraud. It does not impose a primary responsibility for fraud prevention and detection upon auditors—that responsibility lies with management (eliminating C). The standard also does not require auditors to actively raise fraud awareness within the organization (eliminating A), nor does it establish requirements for fraud risk management programs for management (eliminating D).

Under ISA 240, as summarized in the Auditors’ Fraud-Related Responsibilities chapter, if the auditor identifies or suspects fraud involving management, the auditor must communicate those suspicions to those charged with governance and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. The manual also states that when fraud involving management or persons with significant internal control roles is identified, the auditor shall communicate these matters to those charged with governance on a timely basis. Reporting outside the entity may be required in some circumstances, but the auditor must first determine whether such a responsibility exists because confidentiality duties can apply. Therefore, the best immediate response in this scenario is to report the findings to those charged with governance.