ASS 05 Give some examples of conditions or event which increase the risk of fraud or error?


Questions with respect to the integrity or competence of management 

• Management is dominated by one person (or a small group) and there is no effective oversight board or committee.

• There is a complex corporate structure where complexity does not seem to be warranted. 

• There is a continuing failure to correct major weaknesses in internal control where such corrections are practicable.

• There is a high turnover rate of key accounting and financial personnel.

• There is a significant and prolonged understaffing of the accounting department.

• There are frequent changes of legal counsel or auditors



Unusual pressure within or on an entity

• The industry is declining and failures are increasing.

• There is inadequate working capital due to declining profits or too rapid expansion.

• The quality of earnings is deteriorating, for example, increased risk taking with respect to credit sales, changes in business practice or selection of accounting policy alternatives that improve income.

• The entity needs a rising profit trend to support the market price of its shares due to a contemplated public offering, a takeover or other reason