How would you describe the tone at the top set by Teslas leader, Elon Musk?
1. Fraud risks related to Teslas culture, leadership, and governance structure.
a. How would you describe the tone at the top set by Teslas leader, Elon Musk? How do Mr. Musks leadership
style and his tone at the top contribute to possible fraud risk at Tesla Motors?
b. How would you describe the companys culture? How might this culture create pressures and rationalizations for
fraud?
c. Review Teslas Code of Business Conduct and Ethics (see Appendix B for the link to Teslas Code of Business
Conduct and Ethics). How might any potential weaknesses in this code contribute to fraud risk at this company?
d. Describe some possible concerns regarding Teslas board of directors. How might these concerns create
opportunities and rationalizations for fraud?
2. Fraud risks related to Teslas incentive structures and stock performance.
a. To what extent are executives and employees incentivized with shares and stock options (see Appendix B for the link to Teslas 2015 Annual Report, Item 7 Managements Discussion and Analysis (MD&A) and Item 8 Financial Statements and Supplementary Data section, Note 10)? How do these pay structures create pressures/ incentives for fraud?
b. Review Teslas stock performance over the last two years (refer to Exhibit 3). What fraud pressures are created by this stock performance?
3. Fraud risks related to revenue recognition at Tesla.
a. What does Tesla sell and how does the company account for revenue, accounts receivable, and COGS (see Teslas
Issues in Accounting Education Volume 33, Number 2, 2018
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2015 Annual Report, Item 1 Business, Item 7 MD&A, and Item 8 Financial Statements and Supplementary Data,
Note 2)?
b. How might these revenue-recognition practices create opportunities, incentives, and/or rationalizations for fraud?
4. Fraud risks related to Teslas business and operating conditions.
a. Review the business risks disclosed by the company (see Teslas 2015 Annual Report, Item 1A Risk Factors and
Item 8 Financial Statements and Supplementary Data, Note 2 and Note 13). How might some of these business risks
from the external environment also create fraud risks within Tesla?
Asses Tesla Risk Fraud according to the table
Identified Fraud Risk Likelihood Significance Assess Design of Existing Anti-Fraud Controls Evaluate Operating Effectiveness Residual Risks Fraud Risk Response
Excessive stock based compensation can create incentives or pressure for recipients of stock who are also in management to overstate revenue
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At the same time, Musk’s leadership style has also been criticized for being autocratic and at times erratic. He has been known to make impulsive decisions and to publicly criticize employees and other stakeholders, which has led to some controversy and negative media coverage.
Despite these criticisms, Musk’s leadership has been effective in driving Tesla’s growth and pushing the company to new heights. His passion for innovation and commitment to sustainability have inspired a loyal following among Tesla’s employees and customers, and his vision for the future of electric vehicles has helped to shape the direction of the industry as a whole.
