An auditor identifies a risk of material misstatement due to fraud related to management override of controls. Which of the following procedures is REQUIRED to address this specific risk?

Answer options:

Increase the sample size for tests of details of balances.

Examine journal entries and other adjustments for evidence of possible material misstatement due to fraud.

Interview the audit committee regarding their oversight of the financial reporting process.

Perform a physical inventory count at year-end rather than at an interim date.

How to approach this question

Recall the 3 mandatory procedures for Management Override (JE testing, Estimates, Unusual Transactions).

Full Answer

B.Examine journal entries and other adjustments for evidence of possible material misstatement due to fraud.✓ Correct

To address the risk of management override of controls, the auditor must test the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements.

Common mistakes

Selecting general substantive procedures instead of the specific JE testing requirement.

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