Exam CFE - Fraud Prevention topic 1 question 3 discussion

Actual exam question from ACFE's CFE - Fraud Prevention

Question #: 3
Topic #: 1

During an external audit, the audit team identifies evidence that management has intentionally omitted some expenses from the company’s financial statements in order to conceal an asset misappropriation scheme. However, the amount of the resulting misstatement does not meet the quantitative materiality threshold for the audit. Which of the following is TRUE regarding this situation?

A. The auditors should assume that all audit evidence collected previously is unreliable and withdraw from the audit engagement
B. The auditors can ignore the misstatement because the omitted amount is less than the quantitative materiality threshold and therefore immaterial to the audit
C. The auditors do not need to be concerned with this evidence, as asset misappropriation schemes are not considered relevant or material for external audit purposes
D. The auditors should assess the need to adjust the nature, timing, and extent of remaining audit procedures based on this evidence

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Suggested Answer: D 🗳️

by _denw at June 16, 2025, 7:33 p.m.

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_denw

1 day, 1 hour ago

Selected Answer: D

Even if the misstatement is quantitatively immaterial, evidence of intentional fraud is qualitatively material, requiring auditors to reassess their audit approach.

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