- With regards to SAS No. 99 and the “fraud triangle”, which of the following statements regarding the conditions that may lead to fraudulent financial reporting is most accurate? A) An opportunity to commit financial statement fraud when there is a company mindset that fraudulent behavior is justified. B) Both external and internal incentives and pressures are the motives that lead management to commit financial statement fraud. C) Management’s obsession with maintaining or increasing the company’s stock price can result in the opportunity to commit financial statement fraud. D) There is often pressure to commit financial statement fraud when there is a weakness in the company’s internal control system. 2. The nature of a firm’s industry or operations can lead to the existence of opportunities to commit fraud. Which of the following risk factors are related to opportunities to commit fraud? A) Significant related party transactions, especially when those parties are audited by another firm. B) Management being dominated by a single person or small group. C) Ineffective oversight by the board of directors or audit committee. D) Organizational structure that involves unusual legal entities or unusual lines of authority. T/G
B A Edit: Meant to put A for the second one.
- A - mindset is attitude, not opportunity. C - obsession, not opportunity D - weakness is opportunity, not incentive So, B. 2. Not too sure about this one - A doesn’t seem likely with an outside firm involved. B and C don’t seem related to industry/operations. So I’ll go with D.
A C Straining my memory but this is best I could guesstimate
mwvt got it. 1. The correct answer was B) Both external and internal incentives and pressures are the motives that lead management to commit financial statement fraud. Incentive or pressure, opportunity and attitudes or rationalization are the three corners of the fraud triangle. Incentive or pressure can come from one of many sources, and is the motive that exists to commit fraud. 2. The correct answer was A) Significant related party transactions, especially when those parties are audited by another firm. The only risk factor that relates to a company’s industry or operations is the presence of a significant level of related party transactions. The other three risk factors are related to ineffective management monitoring or a complex or unstable organizational structure. T/G
B, D wow… I suck
i went for B and C. What are related party transactions?
Transactions not at arm’s lenght.
such as unconsolidated SPV?
exunctly. Think Enron.
good example. thanks, chrismaths!