The auditor determines that Matthews Company occupies the 3ʳᵈ floor of an office tower for which it pays no rent.The most likely explanation is
A)they got lucky the landlord hasn't noticed the lack of payments.
B)the landlord has weak internal controls over billings.
C)a related party transaction in which a major shareholder owns the office tower.
D)Matthews Company is engaging in fraudulent activities.

Question

Quizplus · Accepted Answer

The fact that Matthews Company is occupying a floor in an office tower without paying rent suggests a possible related party transaction in which a major shareholder of the company could be the owner of the office tower. This would explain why the company is not paying rent and would require further investigation from the auditor. Option A is unlikely because it is improbable that the landlord would not notice lack of payment. Option B is possible, but it is less likely because the landlord would have found out the discrepancy through internal control mechanisms. Option D is possible, but there is not enough evidence to support this conclusion.

The Auditor Determines That Matthews Company Occupies the 3ʳᵈ Floor