Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Question
Chapter 2, Problem 17MCQ
To determine
Introduction:Fraudulent financial reporting is referred to as manipulating the financial statements to achieve certain objectives. Fraudulent financial reporting is conducted by higher level management and affects various stakeholders.
To identify:The option that represents the correct answer relating to the type of transactions that were used in WC Company fraud.
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Which one is not the fraudulent financial reporting? Select one: a. Cash shortage b. Lack of working capital c. Favourable industry economic condition d. Frequent changes of auditor
If a company reported fi ctitious revenue, it could try to cover up its fraud by: A . decreasing assets.
Give an example of an error or fraud that would misstate financial statements to affect the accounts as follows, taking each case independently. (Note: “Overstate” means the account has a higher value than would be appropriate under GAAP and “understate” means it has a lower value.)a. Overstate one asset; understate another asset.b. Overstate an asset; overstate stockholders’ equity.c. Overstate an asset; overstate revenue.d. Overstate an asset; understate an expense.e. Overstate a liability; overstate an expense.f. Understate an asset; overstate an expense.g. Understate a liability; understate an expense.
Chapter 2 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 2 - The Great Salad Oil Swindle of 1963 is an asset...Ch. 2 - Prob. 2TFQCh. 2 - The three elements of the fraud triangle include...Ch. 2 - Prob. 4TFQCh. 2 - Prob. 5TFQCh. 2 - Prob. 6TFQCh. 2 - Prob. 7TFQCh. 2 - Prob. 8TFQCh. 2 - Prob. 9TFQCh. 2 - Prob. 10TFQ
Ch. 2 - Prob. 11TFQCh. 2 - Prob. 12TFQCh. 2 - Prob. 13MCQCh. 2 - Prob. 14MCQCh. 2 - Prob. 15MCQCh. 2 - Prob. 16MCQCh. 2 - Prob. 17MCQCh. 2 - Prob. 18MCQCh. 2 - Prob. 19MCQCh. 2 - Prob. 20MCQCh. 2 - Prob. 21MCQCh. 2 - Prob. 22MCQCh. 2 - Prob. 23MCQCh. 2 - Prob. 24MCQCh. 2 - Prob. 25RSCQCh. 2 - Prob. 26RSCQCh. 2 - Prob. 27RSCQCh. 2 - Refer to Exhibit 2.1 a. What is a Ponzi scheme? b....Ch. 2 - Prob. 29RSCQCh. 2 - Prob. 30RSCQCh. 2 - Prob. 31RSCQCh. 2 - Prob. 32RSCQCh. 2 - Prob. 33RSCQCh. 2 - Prob. 34RSCQCh. 2 - Prob. 35RSCQCh. 2 - Prob. 36RSCQCh. 2 - Prob. 37RSCQCh. 2 - Prob. 38RSCQCh. 2 - Many consider the Enron fraud to be one of the...Ch. 2 - Prob. 40RSCQCh. 2 - Prob. 41RSCQCh. 2 - Refer to Exhibit 2.5 and answer the following...Ch. 2 - Prob. 43RSCQCh. 2 - Prob. 44RSCQCh. 2 - Prob. 45RSCQCh. 2 - Prob. 46RSCQCh. 2 - Prob. 47RSCQCh. 2 - Prob. 48RSCQCh. 2 - Prob. 49RSCQCh. 2 - Prob. 50FFCh. 2 - Prob. 51FFCh. 2 - Prob. 52FF
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Misappropriation of assets: Select one: a. causes harm to stockholders because the assets are no longer available to their rightful owners b. causes the financial statements to be misstated since the misappropriation usually involves material amounts c. is generally committed by company management d. harms the users of the financial statements by providing them incorrect financial data for their decision makingarrow_forwardIf a company reported fi ctitious revenue, it could try to cover up its fraud by: B . increasing liabilities.arrow_forwardGive an example of how a CFO or Controller can fraudulently manipulate financial statements through the use of journal entries. Separately, give an example of a financial reporting practice that is subject to management estimates e.g. fair value measurements of assets, goodwill, transfer pricing - and discuss internal controls that can reduce the opportunities for unethical behavior.arrow_forward
- Which of the following is not a purpose of internal controls? Guarantee profits Protect assets Adherence to company policies Make fraud more difficult Accurate accounting recordsarrow_forwardWhat are the most common approaches that perpetrators use to commit fraudulent financial reportingarrow_forwardThe following situations represent errors and frauds that could occur in financial statements.Required:State how the ratio in question would compare (higher, equal, or lower) to what the ratio should have been had the error or fraud not occurred.a. The company recorded fictitious sales with credits to sales revenue accounts and debits to accounts receivable. Inventory was reduced, and cost of goods sold was increased for the profitable “sales.” Is the current ratio higher than, equal to, or lower than what it should have been?b. The company recorded cash disbursements by paying trade accounts payable but held the checks past the year-end date, meaning that the “disbursements” should not have been shown as credits to cash and debits to accounts payable. Is the current ratio higher than, equal to, or lower than what it should have been? Consider cases in which the currentratio before the improper “disbursement” recording was (1) higher than 1:1, (2) equal to 1:1, and (3) lower than…arrow_forward
- What is the most difficult part of a shell company scheme from the fraudster's perspective? a. Getting the victim company to pay them O b. Producing invoices for fictitious goods O c. Producing invoices for fictitious services O d. Self-approving the fraudulent paymentsarrow_forwardWhich of the following combinations is a good way to conceal employee fraud but an ineffective means of perpetrating management (financial reporting) fraud?a. Overstating sales revenue and overstating customer accounts receivable balances.b. Overstating sales revenue and overstating bad debt expense. c. Understating interest expense and understating accrued interest payable.d. Omitting the disclosure information about related-party sales to the president’s relatives at below-market prices.arrow_forwardHow can SPEs be used to manipulate financial statements? Give one real case example on the misuse of SPEs.arrow_forward
- D1. You read that there is no generally accepted definition of ‘earnings management’. Using your accounting knowledge, your own research and textbook reading to define, describe, and analyze: When will earnings management be acceptable? When will earnings management become a fraud? Fraudulent earnings management is often identified by two adjectives. What are the two adjectives?arrow_forwardA type of impropriety that is hard to find is cheating that comes from:a. More transaction presentationb. Transactions are not recordedc. Transactions are recorded on subsidiary companiesd. Receivables from related partiesarrow_forwardThe direct write-off method is generally not permitted for financial reporting purposes because a. Compared to the allowance method, it would allow greater flexibility to managers in manipulating reported net income.b. This method is primarily used for tax purposes.c. It is too difficult to accurately estimate future bad debts.d. Accounts receivable are not stated for the amount of cash expected to be collected.arrow_forward
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