Problem:
(Fraud risk) Consider the following situation. Company A is a public company that competes in the highly competitive market for manufactured household products. The company is dominated by Rob Bigbucks, the chairman and chief executive officer who has guided the company since it was a private company and has extensive influence on all aspects of company operations. Rob is known to have a short temper and in the past has threatened individuals in the accounting department with the lack of pay raises if they failed to assist him in achieving company goals. Furthermore, the company has extended its influence over customers and has dictated terms of sale to ensure that customers are able to obtain desired quantities of their most popular products. Bonuses based on sales are a significant component of the compensation package for individual product sales managers. Sales managers who do not meet sales targets three quarters in a row are often replaced. The company has performed well up until a recent recession, but now the company is having difficult moving inventory in most product lines as retailers have difficulty selling in a down economy.
1. Identify the fraud risk factors that are present in the case above.
2. Identify the accounts and assertions that are most likely to be misstated based on the fraud risk factors noted in the case.