The auditor determines that Mathews 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) landlord has weak internal controls over billings.
C) 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 occupies an office space without paying rent suggests that there is a related party transaction involved, and a major shareholder of the company owns the office tower. This scenario is quite common in family-owned businesses or where the major shareholder is also a real estate investor. It is unlikely that the company got lucky and the landlord has not noticed the lack of payments, as this would be in violation of the lease agreement, and the landlord would have taken action against the tenant. Similarly, it is not reasonable to assume that the landlord has weak internal controls over billings, as most landlords have strict processes in place to ensure timely payment of rent. Lastly, without any further evidence, it would be inappropriate to assume that Matthews Company is engaging in fraudulent activities.

The Auditor Determines That Mathews Company Occupies the 3rd Floor