Red Flags Exist When It Comes to Identifying Financial Statement

question 41

Essay

Red flags exist when it comes to identifying financial statement fraud. Name and describe three of them.

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Definitions:

Cash Method

An accounting method where transactions are recorded when cash is received or paid out, in contrast to the accrual method.

Constructively Received

Income considered received by the taxpayer once it is made available to them, not necessarily when actually in hand.

Income

Financial gains obtained regularly as a result of working or investing.

Imputed Interest Rules

IRS rules that assign a market-rate interest value to certain transactions where no interest or an unrealistic amount of interest is charged.