ACCA Audit and Assurance (F8) Practice Exam

What is an auditor's responsibility regarding fraud assessment?

1. To overlook the legal framework

2. To obtain an understanding of the regulatory framework

3. To actively participate in fraud prevention

4. To compile reports on detected fraud

The correct answer is: To obtain an understanding of the regulatory framework

An auditor has a critical responsibility to obtain a thorough understanding of the regulatory framework that governs the entity they are auditing, particularly in relation to fraud assessment. This involves being aware of the laws and regulations applicable to the organization, as they guide the auditor in identifying the potential for fraud and understanding the context in which the organization operates. Understanding the regulatory framework is essential as it helps auditors to recognize the risks of fraud specific to the industry and the operational environment of the entity. This knowledge enables auditors to assess the adequacy of the internal controls related to fraud prevention and detection. Moreover, being informed about policies and relevant regulations ensures that the auditor can act within legal and ethical boundaries while carrying out their responsibilities, including planning and conducting the audit with a professional skepticism towards the potential for fraud. The option mentioning overlooking the legal framework fails to acknowledge the importance of understanding regulations, which is vital for effective auditing. Actively participating in fraud prevention is typically outside the auditor's role, which focuses on assessment rather than direct involvement in prevention. Compiling reports on detected fraud is a part of an auditor's duties, but it comes after the assessment process and does not capture the proactive understanding needed prior to the audit engagement. Thus, obtaining knowledge of the regulatory framework is a foundational