If Auditors Believe Their Client Is Under Pressure to Smooth

question 34

Multiple Choice

If auditors believe their client is under pressure to smooth its income and not report any unexpected increases, which of the following risks are likely with regard to current income? (choose two options)

• A)Exclusion of revenues earned just before year-end
• B)Inclusion of expenses incurred after year-end
• C)Inclusion of revenues earned just before year-end
• D)Exclusion of expenses incurred after year-end

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, usually derived from profits.

Mergers

The voluntary amalgamation of two or more corporations to form a new entity, sharing resources, liabilities, and profits.

Horizon Problem

A situation in decision-making where the choice is influenced by the limited timeframe considered for the outcome.