CAF-8 · Chapter 11 · Question 7 of 10
An auditor notices that a client sold a building to its majority shareholder for 10% of its market value. What is the most significant risk associated with this transaction?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The risk of lack of 'Occurrence' and 'Valuation' resulting in hidden distributions to shareholders.
Explanation
Selling an asset significantly below market value to a related party is often a way to illegally extract value (a 'de facto' dividend) while manipulating profit/loss.
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