How is the risk of fraudulent financial reporting affected when significant judgements and estimates are involved?
A) It is marginally affected.
B) It becomes lower than for other entities.
C) It is unaffected.
D) It becomes higher than for other entities.

Question

Quizplus · Accepted Answer

When significant judgements and estimates are involved, the risk of fraudulent financial reporting increases because these judgements and estimates are subjective and can be manipulated to misrepresent the financial statements. This increases the likelihood of management override of controls and intentional misstatements. Therefore, the risk becomes higher than for other entities.

How Is the Risk of Fraudulent Financial Reporting Affected When