Fraud risk factors are examples of factors that increase the risk of fraud.Which of the following is an example of a management "incentives or pressures" risk factor?
A)Customer demand for a new product line was significantly less than expected.
B)Management and the auditors disagree on how to value a large contract in progress.
C)There is only one board member who understands financial statements and she has suffered a heart attack.
D)There has been significant turnover in the accounting department in the last year.

Question

Quizplus · Accepted Answer

Option A is an example of a management "incentives or pressures" risk factor as it suggests that the management may be under pressure to increase revenues or profitability, which could lead to fraudulent behavior such as misstating financial statements. Option B is an example of a "opportunities" risk factor as it suggests a weakness in internal controls over financial reporting, while option C is an example of a "capability" risk factor as it suggests a lack of competent personnel to oversee financial reporting. Option D is an example of a "attitudes or rationalizations" risk factor as it suggests a lack of ethical culture or tone at the top.

Fraud Risk Factors Are Examples of Factors That Increase the Risk