[Fraud Deterrence] Professional auditing standards require that auditors incorporate an "element of unpredictability" in the selection of auditing procedures to be performed.

The statement is correct. Professional auditing standards, specifically those governing the consideration of fraud in a financial statement audit, explicitly require auditors to incorporate an element of unpredictability into their audit plan. This requirement is a direct response to the risk of fraud, particularly management's ability to override internal controls. By varying the nature, timing, and extent of audit procedures—such as performing surprise inventory counts, visiting locations unannounced, or altering testing methodologies from year to year—auditors can increase the likelihood of detecting material misstatements due to fraud. This prevents the auditee from anticipating and concealing fraudulent activities from the auditors' scrutiny.

This is a "True or False" question. The statement is factually correct and directly reflects the mandates of current professional auditing standards. Therefore, the "False" option is incorrect.

1. Public Company Accounting Oversight Board (PCAOB)

Auditing Standard AS 2401

Consideration of Fraud in a Financial Statement Audit.

Paragraph .50 states: "Incorporating an Element of Unpredictability. In the selection of the nature

timing

and extent of audit procedures

the auditor should incorporate an element of unpredictability. Examples of ways to incorporate an element of unpredictability include: a. Performing audit procedures related to accounts

disclosures

and assertions that would not otherwise be tested based on their amount or the auditor's assessment of risk. b. Varying the timing of the audit procedures. c. Selecting items for testing that have lower amounts or are otherwise outside customary selection parameters. d. Performing audit procedures on an unannounced basis."

2. American Institute of Certified Public Accountants (AICPA)

AU-C Section 240

Consideration of Fraud in a Financial Statement Audit.

Paragraph .30 states: "In addition to the overall responses to address the assessed risks of material misstatement due to fraud in paragraphs .28–.29

the auditor should design and perform further audit procedures whose nature

timing

and extent are responsive to the assessed risks of material misstatement due to fraud at the assertion level. These procedures should include... c. Incorporating an element of unpredictability in the selection of the nature

timing

and extent of audit procedures."

3. Association of Certified Fraud Examiners (ACFE)

Fraud Examiners Manual

International Edition (2023).

Section 4.407

"The Role of the External Auditor

" discusses the requirements of auditing standards in response to fraud risks. It explicitly references the mandate from standards like SAS No. 99 (the predecessor to AU-C 240) and AS 2401 for auditors to incorporate unpredictability in their audit tests as a key component of their response to fraud risks.

4. Singleton

T. W.

& Singleton

A. J. (2010). Fraud Auditing and Forensic Accounting (4th ed.). John Wiley & Sons.

Chapter 3

"Auditors' and Investigators' Responsibilities

" details the evolution of auditing standards

including SAS No. 99. It explains that a key procedural change introduced by the standard was the "requirement to incorporate unpredictability into the audit plan" to enhance the detection of fraud. This text is widely used in university-level forensic accounting courses. (DOI for a related concept: https://doi.org/10.1002/9781118269183)