For each of the following cases indicating heightened fraud risk, indicate (a) how a professionally skeptical auditor might interpret the data and (b) how a professionally skeptical auditor might address the possibility of fraud.
Case 1: The company is not as profitable as its competitors, but it seems to have good products. However, it has a deficiency in internal control over disbursements that makes it subject to management override.
Case 2: The company is doing better than its competitors. Although sales are about the same as competitors, net income is significantly more. Management attributes the greater profitability to better management of expenses.
Case 3: The company is financially distressed and is at some risk of defaulting on its debt covenants. The company improves its current ratio and other ratios by making an unusually large payment against its current liabilities, accompanied by highly discounted sales if the customers paid before the year end.