The AICPA's Practice Alert No

question 9

Multiple Choice

The AICPA's Practice Alert No.94-2: Auditing Inventories-Physical Observations describes several circumstances that constitute inventory fraud.Which of the following is not an example of inventory fraud?

• A)including items in inventory when the corresponding payable has not been recorded
• B)adjusting inventory to lower-of-cost-or-market
• C)increasing counts for items that auditors did not test count
• D)counting obsolete inventory as salable or usable

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Definitions:

Status Quo Bias

The preference for maintaining current conditions or resisting change, even when better alternatives exist.

Anchoring Effect

A cognitive bias where an individual depends too heavily on an initial piece of information (the "anchor") when making decisions.

Endowment Effect

A psychological inclination to value possessions more highly solely due to personal ownership.

Endowment Effect

A mental occurrence in which individuals attribute increased worth to objects simply because they possess them.