a. While performing a preliminary assessment for a new client audit, the auditor determines that the client has had excessive growth over the past several years due to recent acquisitions and internal expansion. Through discussions with management, the auditor concludes that the company's operational staff is too lean and that internal controls in several operational functions may be currently insufficient to accommodate this rapid growth. About which of the following fraud risk factors related to the client would the auditor have the greatest concern? 1. Rationalization attitude 2. Inadequate organizational structure 3. Opportunity 4. Incentives/pressures c. Which of the following circumstances would most likely cause an auditor to suspect that there are material misstatements in an entity's financial statements? 1. The entity's management strictly enforces its integrity and ethical values. 2. Monthly bank reconciliations ordinarily include several outstanding checks. 3. Management outsources the internal audit function to another CPA firm. 4. The auditor identifies an inappropriate valuation method that is widely applied by the entity. 10-22 (Objective 10-20) During audit planning, an auditor obtained the following information: 1. Significant operations are located and conducted across international borders in jurisdictions where differing business environments and cultures exist. 2. There are recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. 3. The company's controller works very hard, including evenings and weekends, and has not taken a vacation in two years. 4. The company's board of directors includes a majority of directors who are independent of management. 5. Assets and revenues are based on significant estimates that involve subjective judgments and uncertainties that are hard to corroborate. 6. The company is marginally able to meet exchange listing and debt covenant requirements. 7. The company's financial performance is threatened by a high degree of competition and market saturation. 8. New accounting pronouncements have resulted in explanatory paragraphs for consistency for the company and other firms in the industry 9. The company has experienced low turnover in management and its internal audit function. Required a. Indicate whether the information indicates an increased risk for fraud. b. If the information indicates an increased risk of fraud, indicate which fraud condition (incentives/pressures, opportunities, or attitudes/rationalization) is indicated
