[Corporate Governance] Aqua Corp.'s board of directors is meeting to discuss fraud risk management within the organization. Which of the following activities is among the board of directors' primary responsibilities related to fraud risk management for the company?

The board of directors' fundamental role in fraud risk management is one of governance and oversight, not day-to-day execution. The board is responsible for setting the ethical "tone at the top" and ensuring that senior management has designed and implemented an effective fraud risk management program. Their primary activities include understanding the organization's fraud risks, overseeing management's assessment and response to those risks, and holding management accountable for the program's performance. This oversight function is distinct from the operational tasks of implementing, performing, or directly improving the program, which are management's responsibilities.

B. Monitoring is part of oversight, but proactively improving the program is a direct management responsibility that the board oversees.
C. Performing and updating the fraud risk assessment is an operational task for management; the board's role is to review and challenge the results.
D. Implementing the fraud risk management program is a core function of senior management, not the board of directors.

1. Committee of Sponsoring Organizations of the Treadway Commission (COSO) & Association of Certified Fraud Examiners (ACFE). (2016). Fraud Risk Management Guide

Second Edition. Page 21

Figure 2.2

"Roles and Responsibilities." This figure explicitly lists "Oversight of the fraud risk management program" as a key responsibility for the Board of Directors

while assigning "Implementing the overall fraud risk management program" to Senior Management.

2. Association of Certified Fraud Examiners. (2023). Fraud Examiners Manual

International Edition. Section 4

"Fraud Prevention and Deterrence

" subsection "Corporate Governance." This section clarifies that the board provides oversight and guidance

while management is responsible for the day-to-day operations of the fraud risk management program

including its implementation and maintenance.

3. Beasley

M. S.

Clune

R.

& Hermanson

D. R. (2005). Enterprise risk management: An empirical analysis of factors associated with the extent of implementation. Journal of Accounting and Public Policy

24(6)

521-531. https://doi.org/10.1016/j.jaccpubpol.2005.10.001. This study and similar academic literature on corporate governance consistently affirm that the board's role is oversight of risk management processes

which are implemented and managed by executive leadership.