When Auditing Financial Statements and Finding Indications of a Possible

question 2

Multiple Choice

When auditing financial statements and finding indications of a possible misappropriation of assets, independent auditors should:

• A)investigate fully to determine the total amount of the misappropriation.
• B)determine which accounts are affected and the amount by which they are overstated or understated.
• C)determine the methods by which the misappropriation was carried out.
• D)identify a person(s)who are likely responsible for the misappropriation and obtain evidence about some other fraud indications in their work.
• E)all of the these choices are correct.

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Definitions:

Credit

A financial arrangement where goods, services, or money is borrowed by one party from another, with the promise of repayment usually with interest.

Prepaid Rent

An accounting term for payments made in advance for rent that covers future periods, recorded as an asset on the balance sheet until it is consumed.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was acquired and put into use.

Unearned Ticket Revenue

Revenue received from tickets sold for future events, which is considered a liability until the service (the event) is provided.