The Failure of Many Auditing Firms to Raise Red Flags

question 38

Multiple Choice

The failure of many auditing firms to raise red flags about accounting irregularities in companies such as Enron and WorldCom is generally attributed to all of the following factors, except

• A) the desire to get future auditing contracts from the company.
• B) the desire to get consulting work from the company because most audit firms also do consulting work.
• C) the fact that auditors are appointed by the firm.
• D) the failure of U.S. audit firms to follow internationally accepted accounting standards.

---

Definitions:

Past Transactions

Historical financial activities or operations that have occurred in a company, used for reference or analysis in accounting processes.

Accounts Receivable

Accounts receivable representing amounts due from customers to a business for delivered but unpaid for goods or services.

Revenue

The sum of money earned from the sales of goods or services that are central to a company's main activities.

Inventory

The raw materials, work-in-progress products, and finished goods that a company holds for the purpose of sale in the near future.