ACFE Updated CFE-Fraud-Prevention-and-Deterrence Exam Questions and Answers by ryder

 ACFE Code of Professional Ethics:

The ACFE Code of Ethics prohibits fraud examiners from making absolute statements about the absence of fraud. Fraud cannot be definitively ruled out based on an examination's findings.

 Why B is Correct:

Stevens cannot state that the organization is "free of fraud," as fraud detection is inherently limited by the scope and methods of the examination. Such a statement could mislead stakeholders and compromise ethical standards​​.

Best Practices for Vendor Due Diligence:

Including a clause requiring vendors to report misconduct demonstrates a commitment to transparency and ethical standards.

This measure also ensures accountability and provides the organization with critical information about potential issues.

Analysis of Other Options:

A. Internal audits: While valuable, conducting internal audits of vendors before an agreement is impractical and costly.

B. Concealing due diligence efforts: Transparency in due diligence helps build trust with vendors.

C. Post-contract questionnaires: Due diligence must occur before contracts are signed.

Conclusion:Including a contractual clause about misconduct reporting is the most accurate recommendation.

References:ACFE guidelines on vendor due diligence and fraud prevention​​.

According to the ISAs, auditors are required to communicate identified instances of fraud to those charged with governance of the organization. This ensures that the appropriate individuals within the organization are informed and can take necessary corrective actions. Reporting findings to the media or confronting individuals directly is not considered an appropriate course of action.

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Fraud Discovered During an Audit:

Under ISAs, auditors must communicate findings of fraud to the appropriate governance body, such as the audit committee or board of directors.

This ensures accountability and allows the organization to take appropriate remedial action.

Analysis of Other Options:

A. Confront management: This could compromise the investigation and is not the auditor's role.

B. Report to regulators: Not immediately required unless legal reporting obligations apply.

D. Confidentiality: Confidentiality rules allow communication with governance bodies as part of the audit process.

Conclusion:Reporting findings to the audit committee aligns with ISA requirements and best practices.

References:International Standards on Auditing (ISA) 240: Auditor's Responsibilities Relating to Fraud​​.