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…

Question

Options

• AThe internal auditors violated the standard for due professional care because they did not detect
• BThe internal auditors should have had sufficient knowledge of fraud to identify red flags indicating
• CThe internal auditors could not have detected the fraud due to collusion among employees in the
• DThe internal auditors are not responsible for considering fraud risk, which is a management

• A
  85% (28)
• B
  9% (3)
• C
  3% (1)
• D
  3% (1)

Explanation

Option A is correct because IIA Standard 1220 (Due Professional Care) requires internal auditors to consider the possibility of fraud and be alert to control weaknesses that could enable it. Since a major control deficiency existed during the audit period and went undetected, the auditors failed to exercise the level of care a reasonably prudent auditor would have applied - missing a significant red flag is precisely what due professional care is designed to prevent.

Why the distractors are wrong:

• B is a true general principle (auditors should know fraud red flags), but it describes a standard rather than addressing culpability - it's incomplete as a standalone conclusion and doesn't resolve whether a violation occurred.
• C introduces collusion, which is not mentioned in the scenario; while collusion can make fraud harder to detect, it does not automatically excuse auditors from their due care obligations.
• D is factually incorrect - IIA standards explicitly require internal auditors to consider fraud risk, so it is not exclusively management's domain.

Memory tip: Anchor on the word "major" - if a major deficiency slipped through, that's not a minor oversight; it signals a failure of due professional care. Think: "Major miss = major care violation." Whenever a question combines a missed significant control weakness with a discovered fraud, due professional care (not collusion or management responsibility) is the answer.

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