Presented below are five conditions that exist in an entity that may or may not be considered to be fraud risk factors. Indicate whether or not each condition represents a fraud risk factor; the type of fraud (misappropration of assets vs. fraudulent financial reporting); and the category of the factor (incentives/pressures vs. opportunities vs. attitudes/rationalizations) when applicable.

Fraud Risk Factor? (Yes or No) Type of Fraud Category 1. 2. A company's management has a history of contentious relationships with its external auditors due to unrealistic demands on the timing of auditing procedures and attempts to use marginal estimates and accounting practices to achieve performance goals. A company's centralized purchasing department issues serially-prenumbered purchases orders to vendors for goods and sends coples of the purchases order to the receiving department to authorize the acceptance of the delivery of the goods A large distributing company recently instituted a series of cost-cutting measures and other personnel policies in its warehouses that have adversely affected employee morale due to unrealistic expectations, Increase in physical labor, and hostile working conditions. 3. 4. A company has experienced declining profitability due to increased competition. The company is seeking new financing that it desperately needs to acquire new machinery necessary to regain a competitive edge. 5. A company's profitability is significantly affected by complex Judgements and highly-subjective estimates relative to revenue-recognition