The auditor determines that Mathews Company occupies the 3ʳᵈ floor of an office tower for which it pays no rent.The most likely explanation is:
A)they got lucky the landlord hasn't noticed the lack of payments.
B)landlord has weak internal controls over billings.
C)a related party transaction in which a major shareholder owns the office tower.
D)Matthews Company is engaging in fraudulent activities.

Question

Quizplus · Accepted Answer

A related party transaction, in which a major shareholder owns the office tower, is the most likely explanation for Mathews Company not paying rent. This would be considered a conflict of interest and would violate generally accepted accounting principles (GAAP).

The Auditor Determines That Mathews Company Occupies the 3ʳᵈ Floor