Auditors are required by professional standards to identify and assess the risks of material misstatement caused by fraud. As part of this process, auditors will evaluate and assess potential fraud risks by performing interviews with company personnel. Below, we address common questions about what auditors evaluate during the fraud risk assessment interviews.
What Do Auditors Look For?
During the planning phase of an audit, the audit team conducts brainstorming sessions to identify potential risks unique to the company and its industry. These discussions help outline areas of inquiry and pinpoint high-risk accounts, forming the basis for key questions during the audit fieldwork. While fraud-related inquiries may seem intrusive, they are an essential part of every audit. Auditors cannot assume that fraud risks remain unchanged from prior periods.
Under Clarified Statement on Auditing Standards Section 240, Consideration of Fraud in a Financial Statement Audit, auditors focus on areas such as:
- Management’s knowledge of actual, suspected, or alleged fraud,
- The process management uses to identify, respond to, and monitor fraud risks within the organization,
- The frequency, nature, and results of management’s fraud risk assessments,
- Specific fraud risks identified by management or brought to its attention,
- Transactions, account balances, or disclosures where fraud risks are most likely to exist, and
- Communication between management and governance bodies and employees regarding fraud risks, ethical practices, and acceptable business conduct.
Auditors may also extend their fraud-related inquiries to internal auditors, governance bodies, and other personnel. These individuals might include ethics officers, in-house legal counsel, and employees involved with complex or unusual transactions.
Why Are In-Person Interviews Important?
Whenever possible, auditors prefer to conduct in-person or on-camera interviews to discuss fraud risks. Face-to-face interactions allow auditors to observe nonverbal cues that are critical to identifying potential red flags.
Subtle details like tone of voice, inflection, response timing, and body language add context to verbal answers. Additionally, in-person or on-camera meetings enable immediate follow-up questions, which are invaluable in clarifying responses.
How Can You Support the Process?
You can assist in the fraud risk assessment process by preparing for the types of questions auditors may ask, regularly assessing your company’s risk areas, and gathering any necessary documentation in advance. Prompt and transparent communication ensures the audit remains on schedule and avoids unnecessary delays. For more information on how to prepare for your audit, contact us before the fieldwork begins.
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