Which of the following organizational characteristics is an indicator of a possible fraud?
a. A board of directors comprised mainly of outsiders.
b. An independent internal audit department.
c. An audit committee comprised mainly of insiders.
d. An overstaffed accounting department.
c
FEEDBACK: a. Incorrect. Under normal circumstances, a board of directors comprised mainly of outsiders will probably be more objective and have fewer motives to commit financial statement fraud.
b. Incorrect. An independent internal audit department is a good monitoring control that can both prevent and detect financial statement fraud.
c. Correct. An audit committee comprised mainly of insiders will have more opportunities and motives to commit fraud than an audit committee comprised of outsiders.
d. Incorrect.
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