Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

Question

Quizplus · Accepted Answer

Choice "D" is correct. The auditor identifies factors indicative of potential fraud ("fraud risk factors") as part of assessing the risk of material misstatement. An overly complex organization structure involving unusual lines of authority provides an opportunity for fraudulent financial reporting that would heighten the auditor's concern. Choice "A" is incorrect. Large amounts of liquid assets that are easily convertible into cash would heighten an auditor's concern about misappropriation of assets, not about fraudulent financial reporting. Choice "B" is incorrect. Low growth and profitability might heighten an auditor's concern if it became severe or if management faced excessive pressure to meet financial expectations, but would not necessarily in and of itself heighten an auditor's concern. Choice "C" is incorrect. Nonfinancial management's participation in the selection of accounting principles might heighten the auditor's concern; financial management is expected to participate in such activities.

Which of the Following Factors Most Likely Would Heighten an Auditor's