In every audit engagement, the auditors should identify fraud risks that may require an audit response. Described below is a circumstance or factor that may create an increased risk of material misstatement of financial statements due to fraud.

Part 2

The compensation of management of a telecommunications firm is significantly tied to revenue, and analytical procedures indicate that revenue may be overstated. The company engages in complex sales agreements.

a. For the circumstance, indicate the fraud risk that the auditors should consider.

b. For the circumstance, indicate a possible appropriate response by the auditors.