When auditors identify risks related to fraud, what must they design to ensure detection?

When auditors identify risks related to fraud, it is essential for them to design procedures that provide reasonable assurance of detecting potential fraudulent activities. This involves creating processes and controls that are tailored to the specific risks identified within the organization. Such procedures are intended to be effective enough to detect errors or fraud that may be material to the financial statements.

The emphasis on “reasonable assurance” highlights that while it is impossible to eliminate all risks of fraud, auditors must implement a systematic approach that significantly reduces the likelihood of undetected fraud. These procedures often include a mix of evidence-gathering techniques, analytical procedures, and reviews of internal controls. By proactively addressing fraud risks through carefully structured procedures, auditors can improve the overall integrity and reliability of the financial reporting process.

In contrast, other options, while potentially beneficial in their own contexts, do not address the core need to ensure detection through more focused and actionable auditing procedures. For example, protocols for information sharing may aid in communication but do not directly tie into the structured methodologies required for fraud detection. Similarly, performance reporting mechanisms and stakeholder engagement plans can provide useful insights into operations but do not directly enhance the capacity to detect fraud within audit activities.