Sandy Pitts is auditing Hofmeister Hardware Company, a fast-growing retail hardware chain in the Atlanta area. While Pitts has previously worked on this engagement, this is her first year as the audit manager. As she planned the engagement, Pitts identified a number of risk factors (such as strong interest in maintaining the company’s earnings and stock price, unrealistic forecasts, and high dependence on debt financing for expansion)

that indicated that fraud might exist.