According to Professional Auditing Standards, Which of the Following Best

question 81

Multiple Choice

According to professional auditing standards, which of the following best represents a type of fraudulent financial reporting?

• A) Management accrues a liability and discloses the possible outcome of a lawsuit prior to settling the matter.
• B) Management reclassifies a negative cash balance by decreasing cash and increasing a current liability.
• C) Management discloses its failure to meet loan covenants but states that a waiver has been received.
• D) Management intentionally excludes a subsidiary from its consolidated results that it controls significantly.

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Definitions:

Express Ratification

The explicit approval or confirmation of a previously unauthorized act or agreement.

Implied Ratification

Acceptance or approval of an act or agreement by behavior that suggests agreement, without express confirmation.

Principal's Rights

The legal rights attributed to the principal in an agency relationship, including the right to direct and control the agent's conduct in matters within the scope of the agency.

Imputation

The attribution of responsibility or blame to someone, particularly for legal or financial purposes.