When Dealing with Fraudulent Financial Reporting Risk for Accounts Payable

question 81

Multiple Choice

When dealing with fraudulent financial reporting risk for accounts payable,

• A) companies will generally tend to overstate accounts payable.
• B) it is difficult for the auditor to verify if all liabilities have been recorded if prenumbered receiving reports are used.
• C) companies have used fictitious reductions to accounts payable to overstate net income.
• D) accounts payable is rarely a significant risk area for fraudulent financial reporting.

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Definitions:

Sunk Cost

Expenses already incurred and which cannot be recovered, and should not be considered when making future business decisions.

Direct Manufacturing Cost

The sum of all costs directly tied to the production process, including direct labor and raw materials.

Manufacturing Overhead

Costs incurred in the production process that are not directly associated with individual units, including indirect materials, labor, and utilities, vital for operational continuity.

Gross Margin

A company's revenue minus its cost of goods sold, indicating how efficiently a company uses labor and supplies in production.