clearlycanadian

Based on her analysis of Maxwell Research’s internal operations and business climate, analyst Jane Kilgore is concerned about management’s opportunities to commit fraud. Which of the following characteristics should worry Kilgore least?

A) More than a third of Maxwell’s total sales go to its own consolidated subsidiaries.

B) More than half of Maxwell’s revenue is generated in emerging markets.

C) Maxwell’s market penetration gives it the ability to dictate terms to vendors.

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High levels of related-party transactions are worrisome, particularly when those parties are not audited. But transactions within the company between subsidiaries consolidated in a company’s audited financial statements are neither unusual nor a particularly fertile ground for fraud. Both remaining characteristics are legitimate risk factors.