All 18 Fraud & Error Responsibilities questions
More in Fraud & Error Responsibilities
What should the auditor do if fraud is suspected or identified during the audit? What is the difference between the auditor's and management's anti-fraud responsibilities? What is the significance of the team's fraud discussion (brainstorming)? Does an unmodified audit opinion guarantee there is no fraud? How does discovering fraud affect the auditor's assessment of the whole audit? What are common financial statement fraud schemes auditors watch for? How do data analytics help detect fraud? What reporting obligations may arise when the auditor identifies fraud?
Advertisement
Auditing & Assurance › Fraud & Error Responsibilities

How does the auditor address the risk of management override of controls?

Advanced

Answer

Because management can override even effective controls, ISA 240 requires specific procedures regardless of assessed risk: testing the appropriateness of journal entries and other adjustments (especially unusual, large, or late ones), reviewing accounting estimates for bias (retrospective review of prior estimates), and evaluating the business rationale for significant unusual transactions. Unpredictability in procedures also helps.
Real-world example A retrospective review of last year's estimates reveals a consistent optimistic bias, indicating possible management manipulation.

Common follow-ups: Why test estimates retrospectively? | Why focus on unusual journal entries?

Internal Controls Evaluation Audit Evidence & Procedures Fraud & Error Responsibilities
All 18 Fraud & Error Responsibilities questions