Happy Garden Trading Limited ("the Company") is a private limited company registered in Hong Kong. Lily Wong, the Chief Executive Officer, and Daisy Hung, the Executive Director, each holds 45% of the Company's issued shares. The remaining 10% of the shares are held by other key employees of the Company. Lily and Daisy are from very wealthy families, they are both well-educated and achieved CPA qualifications.

 Lily and Daisy are heavily involved in the daily operations of the Company. All sales and purchase have to be approved by both of them. 

Management meeting is held on a weekly basis. Every Thursday, Lily and Daisy meet with department heads to review the financial results and revise operational plans if necessary.

 Key decisions are reached after thoughtful consideration and detailed discussions with department heads. Lily and Daisy establish a formal Code of Conducts for the Company that is communicated to all levels of staff, and staff are expected to comply with the Code at all times. The Company sets a reasonable and achievable financial budget, however meeting the financial budget is not the only criterion in assessing employees' performance. Other quantitative and qualitative key performance indicators are also developed to measure employees' performance. The Company has maintained a healthy and stable performance in the past seven years with a relatively stable dividend pay-out ratio compared with similar companies in the industry. You are a member of the audit team handling the audit of the Company's financial statements for the year ended 31 December 2020.

Required: 

(a) Your audit manager has assessed the fraud risks of the Company as low level. Examine the case information and provide reasons to justify your audit manager's conclusion.

(b) Explain why management fraud is more difficult to detect than employee fraud. 

Answer rating: 100% (QA)

a Based on the information provided there are a number of reasons why your audit manager may have assessed the fraud risks of the Company as low level First the Company has a strong corporate governan... View the full answer