Fraudulent financial reporting usually occurs as the result of environmental, institutional, or individual pressures and opportune situations. These pressures and opportu¬ nities, present to some degree in all companies, motivate individuals and companies to engage in fraudulent financial reporting. The prevention and detection of fraudulent financial reporting require that these pressures and opportunities be identified and evaluated in terms of the risks they pose to a company. These risk factors include internal ethical and control factors, as well as external environmental conditions.

Required

a. Identify two company situational pressures that would increase the likelihood of fraud.

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?