CAF-8 · Chapter 3 · Question 4 of 10
A client's executive compensation is heavily tied to meeting an aggressive 25% annual profit growth target. According to ISA 240, what does this primarily represent?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A fraud risk factor (incentive/pressure) for fraudulent financial reporting
Explanation
Management bonuses tied to aggressive targets create intense pressure to artificially inflate profits, which is a classic fraud risk factor for fraudulent financial reporting.
More Planning and Risk Assessment MCQs
- Q6Which of the following is a primary difference between the Overall Audit Strategy and the Audit Plan?
- Q7When auditing an unlisted, not-for-profit charitable trust, what is generally the most appropriate benchmark for setting overall…
- Q8Which of the following represents 'misappropriation of assets' rather than 'fraudulent financial reporting'?
- Q9During a first-year audit engagement, an auditor must perform additional planning procedures. Which of the following is a critical…
- Q10If the auditor suspects that management is overriding internal controls to manipulate financial results, which specific audit procedure is…