Part I Case Requirements: Identifying Fraud Risk Factors

1. Fraud risks related to Tesla's culture, leadership, and governance structure.

a. How would you describe the ''tone at the top'' set by Tesla's leader, Elon Musk? How do Mr. Musk's leadership style and his ''tone at the top'' contribute to possible fraud risk at Tesla Motors?

b. How would you describe the company's culture? How might this culture create pressures and rationalizations for

fraud?

c. Review Tesla's Code of Business Conduct and Ethics (see Appendix B for the link to ''Tesla's Code of Business

Conduct and Ethics''). How might any potential weaknesses in this code contribute to fraud risk at this company?

d. Describe some possible concerns regarding Tesla's board of directors. How might these concerns create

opportunities and rationalizations for fraud?

2. Fraud risks related to Tesla's incentive structures and stock performance.

a. To what extent are executives and employees incentivized with shares and stock options (see Appendix B for the link to ''Tesla's 2015 Annual Report,'' Item 7 Management's Discussion and Analysis (MD&A) and Item 8

Financial Statements and Supplementary Data section, Note 10)? How do these pay structures create pressures/ incentives for fraud?

b. Review Tesla's stock performance over the last two years (refer to Exhibit 3). What fraud pressures are created by this stock performance?

3. Fraud risks related to revenue recognition at Tesla.

a. What does Tesla sell and how does the company account for revenue, accounts receivable, and COGS (see ''Tesla's 2015 Annual Report,'' Item 1 Business, Item 7 MD&A, and Item 8 Financial Statements and Supplementary Data, Note 2)?

b. How might these revenue-recognition practices create opportunities, incentives, and/or rationalizations for fraud?

4. Fraud risks related to Tesla's business and operating conditions.

a. Review the business risks disclosed by the company (see Tesla's 2015 Annual Report, Item 1A Risk Factors and Item 8 Financial Statements and Supplementary Data, Note 2 and Note 13). How might some of these business risks from the external environment also create fraud risks within Tesla?

b. What fraud risks are posed by Tesla's expansion plans and the company's ability to operate as a going concern (see ''Tesla's 2015 Annual Report,'' refer to Item 1A)?

c. What related-party transactions support Tesla's financial performance (see ''Tesla's 2015 Annual Report,'' Item 1 Manufacturing)? How might these transactions create opportunities for fraud?

5. Fraud risks indicated by the results of preliminary analytical procedures.

a. What fraud risks may be indicated by the year-to-year comparisons of Tesla's financial statements (refer to Exhibits 1 and 2)?

b. How does the company perform relative to its peers (refer to Exhibit 4)? Do these ratios and trends seem reasonable?