The following are some conditions that may indicate a fraud risk factors (i.e., red flags). For each of the conditions indicate (1) the ONE most relevant component of the fraud triangle that the condition relates to, and (2) the type of fraud that could occur (fraudulent financial reporting or misappropriation of assets). If the condition does not indicate a risk of fraud, indicate "N/A". FRAUD TRIANGLE COMPONENT CONDITION FRAUD TYPE 1 Management has a strong interest in employing inappropriate means to minimize reported earnings for tax-motivated reasons. The company's board of directors includes a majority of directors who are independent of management 2 Assets and revenues are based on significant estimates that involve subjective judgments and uncertainties that are hard to corroborate. 3 There is an adverse relationship between management and employees due to future anticipated layoffs. New accounting pronouncements have resulted in explanatory paragraphs for consistency for the company and other firms in the industry. 5. Significant operations are located and conducted across international borders in jurisdictions where differing business environments and cultures exist. There are recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. Because there are only a few employees in the accounting department, the bookkeeper is responsible receiving customer payments. Additionally, when the accounts receivable clerk is out of the office the bookkeeper fills in and uses his access to update customer accounts. There is a lack of an appropriate system for authorizing and approving the use of the Company's credit cards issued to executives. 8 9