While Performing an Audit of the Financial Statements of a Company

question 58

Multiple Choice

While performing an audit of the financial statements of a company for the year ended December 31, year 1, the auditor notes that the company's sales increased substantially in December, year 1, with a corresponding decrease in January, year 2. In assessing the risk of fraudulent financial reporting or misappropriation of assets, what should be the auditor's initial indication about the potential for fraud in sales revenue?

• A)There is a broad indication of misappropriation of assets.
• B)There is an indication of theft of the entity's assets.
• C)There is an indication of embezzling receipts.
• D)There is a broad indication of financial reporting fraud.

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Definitions:

Vagus Nerves

The tenth cranial nerves, extending from the brainstem to the abdomen, which play critical roles in controlling heart, digestive, and respiratory functions.

Sympathetic Division

A part of the autonomic nervous system that prepares the body for physical activity by accelerating heart rate, constricting blood vessels, and raising blood pressure.

Autonomic Nervous System

A system that is in charge of the body’s automatic functions, such as the respiratory and gastrointestinal systems.

Norepinephrine

A neurotransmitter released by sympathetic neurons onto organs and glands for fight-or-flight (stressful) situations.