ACFE CFE-Fraud-Prevention-and-Deterrence Exam With Confidence Using Practice Dumps

Inherent fraud risk is the fraud risk that exists before considering the effect of controls. Residual fraud risk is the risk that remains after preventive and detective controls are applied. Anti-fraud controls are not expected to eliminate all fraud risk because no internal control system can provide absolute assurance. Instead, the objective is to reduce residual fraud risk to a level that is acceptable to management and significantly lower than the inherent risk. Option A is incorrect because complete elimination of fraud risk is unrealistic. Option B reverses the definition of inherent risk. Option D reverses the definition of residual risk. Therefore, option C correctly describes the relationship between inherent risk, residual risk, and anti-fraud controls in a fraud risk assessment.

In the White-Collar Crime chapter, the manual’s discussion of Crimes of the Middle Classes identifies several factors contributing to the rising problem of economic crime. One of the specific factors mentioned is that the economy increasingly runs on credit, which often leads to rising personal debt. The manual notes that offenders frequently showed serious discrepancies between their resources and their commitments, and it further explains that the easy availability of money and goods on credit can fuel fraud schemes. This directly supports option B. The other answer choices do not reflect the factors listed in the manual. Therefore, the correct answer is the economy’s increased reliance on credit.

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Under ISA 240, when an auditor identifies or suspects fraud involving management, especially senior management, the auditor must communicate the matter to those charged with governance unless clearly inappropriate. Because Jeffrey is the CEO, reporting directly to him would not be appropriate. The auditor should not immediately report to a government authority unless law, regulation, or professional duty requires external reporting. The auditor also should not remain silent simply because legal liability might exist. Confronting the CEO to obtain a confession is not the auditor’s role and could compromise the audit, investigation, or evidence. Those charged with governance, such as the board or audit committee, are responsible for oversight and should be informed of suspected senior management fraud. Therefore, option B is correct.