Which of the following may indicate management fraud?
A) The name of a relative of a member of upper management is suggested to fill a board of directors' vacancy.
B) Increases and decreases in inventory fluctuate from period to period.
C) Inconsistencies exist between what management is telling the auditor and what the auditor observes.
D) Several mistakes are discovered in the inventory records.

Question

Quizplus · Accepted Answer

Inconsistencies between what management is telling the auditor and what the auditor observes may indicate that management is intentionally misleading the auditor and concealing fraudulent activity. The other answer choices do not necessarily indicate management fraud. A) Suggesting a relative for a board vacancy may be a conflict of interest or nepotism, but it does not necessarily indicate fraud. B) Fluctuations in inventory levels can be a normal occurrence and may not indicate fraud. D) Mistakes in inventory records may indicate errors in accounting or record keeping, but again, do not necessarily indicate fraud.

Which of the Following May Indicate Management Fraud