Certified Government Auditing Professional (CGAP) Practice Exam

If management identifies a risk of theft but declines additional controls, what should be the auditor's course of action?

1. Ignore the issue as management accepted the risk.

2. Develop a deficiency finding.

3. Gather facts to assess the reasonableness of management's decision.

4. Make informal suggestions for additional security measures.

The correct answer is: Gather facts to assess the reasonableness of management's decision.

When management identifies a risk of theft but chooses not to implement additional controls, the auditor's appropriate response involves gathering facts to assess the reasonableness of management's decision. This process entails understanding the rationale behind management's choice, as it is critical for the auditor to evaluate whether the risk has been adequately considered and whether the decision aligns with the organization's risk tolerance and overall governance framework. By gathering facts, the auditor can make an informed judgment regarding the effectiveness of existing controls and the appropriateness of management's risk acceptance. This step ensures that the auditor is not merely overlooking a potential issue based on management's decision but is instead thoroughly examining the context, such as the cost-benefit analysis performed by management or the specific circumstances that led to the decision. This approach fosters a collaborative environment between the auditor and management, promoting transparency and a proactive stance on risk management rather than treating it as an isolated issue. Ultimately, this process helps uphold the integrity of the auditing function and ensures that significant risks are appropriately acknowledged and addressed. The alternative choices do not align with the best practices in auditing. Ignoring the issue would be irresponsible, as it disregards the potential implications of management's risk acceptance. Simply developing a deficiency finding without first assessing management's justification may lead to