Which of the Following Is Not a Reason Why the Auditor

question 75

Multiple Choice

Which of the following is not a reason why the auditor needs to take special care to review significant estimates in the financial statements?

• A) Organizations may try to use the estimates to "smooth" earnings.
• B) Organizations may create hidden reserves in unusually good years that can be used in years when real profits do not meet expectations.
• C) Companies may underestimate liabilities or impairment of asset values to achieve reported earning goals in years when real profits to not meet expectations.
• D) Companies may try to overestimate liabilities in computing leverage ratios.

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Definitions:

Petty Cash Fund

A small amount of cash kept on hand, used for paying minor expenses to avoid the complexity of writing cheques.

Cash Short

A situation where the amount of cash on hand is less than the recorded amount, often indicating errors or theft.

Office Supplies

Consumable items that are used in offices on a day-to-day basis for administrative and office-related tasks, such as paper, pens, and staples.

Petty Cash Fund

A small amount of cash kept on hand for minor, immediate expenses to avoid the complexities of writing checks.