Should Nonfinancial Indicators Be Used for Assessing Fraud Risk? Why

question 5

Multiple Choice

Should nonfinancial indicators be used for assessing fraud risk? Why or why not?

• A) No. A company's financial statement data need not always be consistent with its nonfinancial measures.
• B) Yes. Management can more easily manipulate financial numbers but finds it harder to keep all the nonfinancial information consistent with the financial information.
• C) No. Nonfinancial measures are indicative of physical assets alone.
• D) Yes. Management attempts to commit fraud first show up in these indicators. Financial statement fraud is an attempt to cover up those attempts.

---

Definitions:

Depreciation of Capital

This refers to the decrease in the value of physical assets over time due to use, wear and tear, or obsolescence.

Wages Paid

The amount of money workers receive from employers in exchange for their labor.

Sunk Costs

Sunk costs are past expenditures that have already been incurred and cannot be recovered, and thus should not impact future decision-making.

Past Costs

Refers to expenses that have already occurred and cannot be recovered.