Fraud Risk Reduction Objectives:
* Inherent fraud risk:The risk present before any controls are applied.
* Residual fraud risk:The remaining risk after controls have been implemented.
Why D is Correct:
* The goal of anti-fraud controls is to minimize residual risk to acceptable levels, recognizing that complete elimination of risk is unattainable.
Why Other Options are Incorrect:
* A and C:It is impractical to completely eliminate inherent or residual fraud risks.
* B:Residual risk should be lower than inherent risk, but controls aim for significant reduction

Treadway Commission Recommendations:
The National Commission on Fraudulent Financial Reporting (Treadway Commission) issued guidelines to strengthen financial reporting integrity and reduce fraud risks.
One key recommendation was to ensure that the audit committee is well-resourced and has sufficient authority to oversee financial reporting processes effectively.
Audit Committee Role:
An adequately empowered audit committee improves oversight, supports the internal audit function, and ensures proper implementation of controls to prevent and detect fraud.
Why D is Correct:
This recommendation directly addresses the reduction of fraud probability by enhancing oversight capabilities.

Purpose of Fraud Risk Assessment:
Fraud risk assessment aims to identify vulnerabilities and evaluate the organization's exposure to fraud risks.
It does not specifically provide an estimate of fraud losses.
Why D is Correct:
Estimating fraud losses is not a standard objective of fraud risk assessments; rather, they focus on identifying and mitigating risks.
Why Other Options are Correct:
A: Employee behavior is a critical factor in fraud risk.
B: Fraud awareness is a key outcome of the assessment.
C: High-risk designations indicate vulnerability, not confirmed fraud.

Risk assessment is a core component of the COSO Framework and focuses on identifying, analyzing, and evaluating risks that could affect the organization's objectives. Andrew's initiative to evaluate threats aligns with this component, as it involves understanding the potential risks and their impact on achieving the organization's goals.