A client's perpetual inventory records show significantly higher balances than the physical inventory count. Which fraud risk indicator is most directly suggested by this discrepancy?

Question: A client's perpetual inventory records show significantly higher balances than the physical inventory count. Which fraud risk indicator is most directly suggested by this discrepancy?

Answer options:

• Pressure to meet earning targets. ✅ Opportunity for inventory theft.
• Rationalization of employee misbehaviour.
• Complexity of inventory costing methods.

Correct answer: Opportunity for inventory theft.

Explanation: A significant discrepancy where book inventory exceeds physical inventory can indicate that inventory has been stolen, pointing to an opportunity for fraud within the inventory management system.