The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:
A)tests of controls.
B)tests of transactions.
C)understanding the entity's internal control.
D)the assessment of whether to accept the audit engagement.

Question

Quizplus · Accepted Answer

The evaluation of the likelihood of material employee fraud is primarily done during the planning phase of the audit as a part of understanding the entity's internal control. This helps the auditor in identifying areas that have a higher probability of fraud, thereby directing the auditor towards the areas needing specific attention and increasing the overall effectiveness of the audit. The evaluation of the likelihood of fraud is not an initial consideration during the assessment of whether to accept the audit engagement or tests of controls and transactions.

The Auditor's Evaluation of the Likelihood of Material Employee Fraud