Certified Internal Auditor (CIA) Part 1: Business Acumen — Question 74

An internal audit of warehouse inventory revealed no material deficiencies. However, management later discovered fraud, which occurred during the period that was audited, and determined that a major control deficiency allowed the fraud to occur. Given management's discovery, which of the following statements is valid?

Answer options

• A. The internal auditors violated the standard for due professional care because they did not detect the fraud, even though it occurred during the period that was reviewed.
• B. The internal auditors should have had sufficient knowledge of fraud to identify red flags indicating possible fraud.
• C. The internal auditors could not have detected the fraud due to collusion among employees in the inventory unit.
• D. The internal auditors are not responsible for considering fraud risk, which is a management responsibility.

Correct answer: D

Explanation

The correct answer is D because the responsibility for assessing fraud risk lies primarily with management, not the internal auditors. Although auditors are expected to be aware of potential fraud indicators, they are not accountable for preventing fraud, especially if it results from management's failure to maintain effective controls. Options A, B, and C incorrectly place the burden of fraud detection solely on the auditors.