In order to assess the likelihood of misappropriation of assets and the likelihood of fraudulent financial reporting, each of the following fraud risk factors should be considered in the Acme audit: The possibility of ineffective monitoring of management as a result of an ineffective board of directors or audit committee oversight over the financial reporting process and internal controls.
A complex or unstable organization structure as evidenced by high turnover if senior management, legal counsel or board members
Aggressive accounting policy choices and questionable financial reporting practices adopted by management
Excessive pressure on management or operating personnel to meet financial targets established by the board of directors or senior management, including sales or profitability incenthve goals
Indications of inadequate segregation of duties or a lack of independent checks and balances
Inadequate physical safeguards over cash investments, inventory or fixed assets
Disregard for internal controls over misappropriation of assets by overriding existing controls or by failing to correct known control deficiencies
Disregard of the need for monitoring and reducing risks relating to misappropriation of assets
One of the strengths of Acme is an effective board of directors. For example, the board seems to play an appropriate role in monitoring Acme's business operations. With respect to item #1 listed above, the board meets five to six times a year,
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