To be proactive, the audit committee should ensure that:
1) Audit committee members have knowledge, education, awareness, and sophistication concerning the various fraudulent management override and collusive schemes that may be perpetrated by management.
2) Only the external audit group needs have knowledge, education, awareness, and sophistication concerning the various fraudulent management override and collusive schemes that may be perpetrated by management.
3) The audit committee has reviewed the comprehensive fraud risk assessment provided by management and also considers how collusive fraud and management override schemes are mitigated and detected.
4) The audit committee periodically participates in continuing education programs that can prepare its members to appraise management's fraud risk assessment.
5) The audit committee identifies who has the specific responsibility for the collusive and management override fraud risk assessment process: its members, the internal audit group, or the independent audit group?
6) The audit committee is interacting with personnel beyond executive management and asking the tough questions of knowledgeable employees, financial managers, internal auditors, and external auditors.
7) The audit committee has a protocol for acting on proven unethical and potentially fraudulent conduct.
Select the answer which is most correct.

Question

Quizplus · Accepted Answer

Option 1 is incorrect because audit committee members need to be knowledgeable about fraudulent schemes to understand how to mitigate them effectively. 
Option 2 is incorrect because external auditors alone cannot assess and evaluate all aspects of the risk of fraudulent schemes occurring. 
Option 3 is correct because it is important for the audit committee to review management's fraud risk assessment and mitigation plan, including collusive fraud and management override schemes. 
Option 4 is correct because continuing education can help the audit committee stay current and informed about fraudulent schemes perpetrated by management. 
Option 5 is unnecessary because it is clear that the audit committee is responsible for overseeing the risk assessment process. 
Option 6 is correct because it is important for the audit committee to maintain an open line of communication with personnel other than executive management to seek additional information and gain a deeper understanding of the control environment. 
Option 7 is correct because the audit committee needs to have a protocol in place for responding to unethical conduct, including suspected fraud.

To Be Proactive, the Audit Committee Should Ensure That