Fraud Related to Revenue Recognition Will Most Likely Be Identified

question 108

Multiple Choice

Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations?

• A)Sales have increased 5% in the current period over the previous period and is consistent with the results of competitors.
• B)Gross margin is equivalent in the current period to previous periods and is below that of the industry.
• C)Sales are higher in the month preceding each quarter end.
• D)Sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction.

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Definitions:

Labor Costs

The total sum of all wages, benefits, and taxes paid to employees by an employer for work performed.

Period Costs

Expenses that are not directly tied to production activity and are charged to the period in which they are incurred.

Balance Sheet

A financial statement that shows the assets, liabilities, and equity of a company at a specific point in time, illustrating its financial position.

Income Statement

A report that outlines an organization's earnings and costs for a set period, culminating in a net gain or shortfall.