ACCA Audit and Assurance (F8) Practice Exam

Which of the following is a fraud risk factor under the incentive or pressure category?

1. Knowledge of internal controls

2. Unrealistic internal targets

3. Inadequate employee training

4. External market pressures

The correct answer is: Unrealistic internal targets

Fraud risk factors categorized under incentive or pressure reflect circumstances or conditions that may motivate individuals to commit fraud. Unrealistic internal targets are a significant concern as they create immense pressure on employees to meet expectations that may be unattainable. This pressure can lead individuals to engage in fraudulent activities to achieve these targets, whether by manipulating financial results, misreporting performance, or resorting to other unethical practices to present a more favorable picture of their work or results. When individuals feel compelled to meet stringent or unrealistic goals set by management, the risk of fraudulent behavior increases. This can be exacerbated if there are inadequate reporting mechanisms, limited oversight, or a culture that emphasizes results over ethical behavior. Ensuring that performance targets are realistic and achievable is crucial in reducing the pressure that could lead to fraud. The other options do not fall into the incentive or pressure category as directly. Knowledge of internal controls relates more to an individual's familiarity with the controls designed to prevent fraud, while inadequate employee training and external market pressures, although potentially relevant, do not directly create the incentive to act fraudulently as strongly as unrealistic targets do.