Which of the following organizational characteristics is a possible fraud red flag:
A) A board of directors comprised mainly of outsiders.
B) An independent internal audit department.
C) An audit committee comprised mainly of insiders.
D) An overstaffed accounting department.

Question

Quizplus · Accepted Answer

A: Incorrect. Under normal circumstances, a board of directors comprised mainly of outsiders will probably be more objective and have fewer motives to commit financial statement fraud.
B: Incorrect. An independent internal audit department is a good monitoring control that can both prevent and detect financial statement fraud.
C: Correct. An audit committee comprised mainly of insiders will have more opportunities and motives to commit fraud than an audit committee comprised of outsiders.
D: Incorrect.

Which of the Following Organizational Characteristics Is a Possible Fraud