The risk of fraudulent financial reporting is greater for companies:

Question

Quizplus · Accepted Answer

Companies that have greater dispersion of inventories, ineffective audit committee, and significant estimates are at greater risk of fraudulent financial reporting. The dispersion of inventories provides greater opportunities for manipulation and misstatement of inventory values. An ineffective audit committee may fail to detect irregularities and frauds in financial reporting. Lastly, significant estimates are inherently subjective and involve a higher degree of judgment, which can be misused for fraudulent purposes. Therefore, all of the above factors increase the risk of fraudulent financial reporting.

The Risk of Fraudulent Financial Reporting Is Greater for Companies