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:

Division Revenues

The total income generated from the sales of goods or services by a specific division or segment of a larger company.

Profit Centers

Divisions or branches of a company that are directly responsible for generating its profits, tracked separately to evaluate performance.

Discretion

The ability or authority to make decisions and choices based on one's own judgment.

Corporate Executives

Senior management or high-level officers in a corporation who are responsible for making company-wide decisions.