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:

Fudging

The act of manipulating or altering information, often to deceive or achieve a desired outcome.

Stakeholder Social Responsibility

An organizational approach that considers the impacts of its decisions and activities on all stakeholders, including employees, customers, communities, and the environment.

Managerial Policies

Guidelines, rules, and procedures set by management to govern actions and decision-making within an organization, aiming to achieve its objectives efficiently.

Whistleblowing

The act of exposing any kind of information or activity that is deemed illegal, unethical, or not correct within an organization by someone who is a part of that organization.