Environmental, institutional, or individual pressures and opportune situations, which are present to some degree in all companies, motivate individuals and companies to engage in fraudulent financial reporting. Fraud prevention and detection require that pressures and opportunities be identified and evaluated in terms of the risks they pose to a company.

REQUIRED

a. Identify two company pressures that would increase the likelihood of fraudulent financial reporting.

b. Identify three corporate opportunities that make fraud easier to commit and detection less likely.

c. For each of the following, identify the external environmental factors that should be considered in assessing the risk of fraudulent financial reporting:

• The company’s industry

• The company’s business environment

• The company’s legal and regulatory environment

d. What can top management do to reduce the possibility of fraudulent financial reporting? (CMA Examination, adapted)