According to Professional Auditing Standards,which of the Following Best Represents

question 18

Multiple Choice

According to professional auditing standards,which of the following best represents a type of financial reporting fraud that might occur?

• A)Management accrues a liability and discloses the possible outcome of a lawsuit prior to settling the matter.
• B)Management reclassifies a negative cash balance by increasing cash and also increasing a current liability.
• C)Management discloses its failure to meet loan covenants but states that a waiver has been received.
• D)Management intentionally excludes a material subsidiary from its consolidated results that it controls significantly.

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Definitions:

Cash Payback Period

The duration required for an investment to generate cash flows sufficient to recover the initial outlay or cost.

Net Income

A company's earnings that remain after subtracting all expenses and taxes from total revenue.

Expenditure

Money spent or cost incurred in an organization's efforts to generate revenue, representing the consumption of goods and services.

Discount Period

The time period between the date of sale and the due date, during which a payment may be made at a reduced rate.