The auditor assess management integrity as a potential indicator of inherent risk, particularly as it relates to the potential for fraud. Although the assessment of management integrity takes place on every audit engagement, it is difficult and subjective task. This task requires that the auditor exhibit professional skepticism; this can be difficult because it is human nature to trust people we know.

1. Is it ethical for upper level management to refuse to correct an income-decreasing detected misstatement because doing so would cause the company to miss its analysts' consensus earning forecast?
2. The owner/manager of a privately held company also owns three other companies. The individual companies could be run as one combined company, but they engage extensively in related-party transactions to minimize the overall tax burden for the owner/manager. How should this situation be assessed?