Reference no: EM13887356

For each of the following situations indicating heightened fraud risk, discuss how a professionally skeptical auditor might interpret the situation.

a. The company is not as profitable as its competitors, but it seems to have good products. However, it has a deficiency in internal control over disbursements that makes it subject to management override.

b. The company is doing better than its competitors. Although sales are about the same as competitors, net income is significantly more. Management attributes the greater profitability to better control of expenses.

c. The company is financially distressed and is at some risk of defaulting on its debt covenants. The company improves its current ratio and other ratios by making an unusually large payment against its current liabilities, accompanied by highly discounted sales if their customers paid before year end.

d. A smaller public company has a CFO who has centralized power under her. Her style is very intimidating. She is not a CPA; and she has limited accounting experience. The company has not been able to increase profitability during her time with the company.