Which of the following might alert an auditor to the possibility of fraud in a division?
I. The division is not scheduled for an external audit this year.
II. Sales have increased by 10 percent.
III. A significant portion of management's compensation is directly tied to reported net income of the division.
A significant portion of management's compensation being directly tied to reported net income of the division can create an incentive for management to manipulate financial results. This type of situation is a classic red flag for potential fraud, as it may encourage actions to inflate income figures to maximize personal gain. The other options, I and II, do not directly indicate potential fraud risk factors: not being scheduled for an audit and a sales increase of 10 percent do not inherently suggest fraudulent activity.
Why are many questions in Part 2 also found in Part 1 ??