ACA ICAEW Audit and Assurance Full Practice Exam 2025

Performing a fraud risk assessment is a critical audit procedure used to detect potential fraud within an organization. This procedure involves evaluating the entity's susceptibility to fraud by identifying and assessing the risks that could lead to material misstatements in financial reporting.

auditors analyze various factors, including industry conditions, the organization's internal controls, and the motivations or pressures that could drive individuals within the organization to commit fraudulent acts. By understanding these risk factors, auditors can tailor their audit approach, including the nature, timing, and extent of further audit procedures, to focus on areas with a higher risk of fraud.

This proactive approach allows auditors to gather sufficient evidence to reduce fraud risks and enhance the overall reliability and validity of the financial statements. When auditors conduct thorough assessments of fraud risk, they also foster a culture of awareness and vigilance against fraudulent activities, which can serve as a deterrent against such behavior.

In contrast, assuming that financial statements are free from fraud, ignoring discussions about fraud, or eliminating skepticism would undermine the integrity of the audit process and could lead to unrecognized fraud, ultimately failing to protect stakeholder interests.