Question

Which of the following factors might indicate an increased risk of fraud within an organization?

a) Nature of the Industry or entity's operations
b) Nonfinancial management's excessive participation in selection of accounting principles and estimates
c) Discussions among engagement personnel
d) Procedures performed to identify and assess the risks of material misstatement due to error or fraud

Answer 1

Nonfinancial management's excessive participation in selection of accounting principles and estimates indicates an increased risk of fraud within an organization.

Step-by-step explanation:

The factor that might indicate an increased risk of fraud within an organization is nonfinancial management's excessive participation in selection of accounting principles and estimates. When management exerts too much influence over the accounting decisions, it can create an opportunity for manipulation and fraudulent activities. For example, if managers are able to override established accounting principles to present financial statements in a more favorable light, it increases the risk of fraud.