Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting?
A) Several members of management have recently purchased additional shares of the entity's stock.
B) Several members of the board of directors have recently sold shares of the entity's stock.
C) The entity distributes financial forecasts to financial analysts that predict conservative operating results.
D) Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.

Question

Quizplus · Accepted Answer

Management's interest in maintaining an earnings trend by using aggressive accounting practices increases the risk of fraudulent financial reporting. This is because such practices may involve deliberate misstatements or omissions in financial statements to manipulate financial performance. A and B relate to insider trading and do not necessarily suggest fraudulent financial reporting. C is not directly related to the risk of fraudulent financial reporting.

Which of the Following Circumstances Would an Auditor Most Likely