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    Question

    An auditor detects unusual journal entries passed at

    month-end involving revenue accounts, without supporting documents. Management explains they are “year-end adjustments.” According to SA 240 (Fraud), what should be the auditor’s response?
    A Accept explanation and move on. Correct Answer Incorrect Answer
    B Obtain sufficient audit evidence about authenticity, considering risk of management override. Correct Answer Incorrect Answer
    C Ignore since balances match overall revenue. Correct Answer Incorrect Answer
    D Qualify audit opinion immediately. Correct Answer Incorrect Answer
    E Escalate directly to regulators. Correct Answer Incorrect Answer

    Solution

    SA 240 requires auditors to maintain professional scepticism and evaluate risk of fraud via management override, especially journal entries at period-end.

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