While conducting the annual audit of Bluebird Company's financial statements, Elsie Finnegan, CFE, CPA, came across some fishy findings. The company recorded several large and unusual sales at the end of the fiscal year to customers Elsie had never heard of. Further, all of these sales occurred within the company's specialty division, which had previously been in danger of closing due to recurring losses. Based on these findings, what type of financial statement fraud is likely occurring?

Question

Quizplus · Accepted Answer

The unusual and large sales to customers that the auditor has never heard of in the specialty division could be an indication of fictitious revenues being recorded in the financial statements. This is often done to artificially inflate revenues and mislead investors or creditors. There is no indication of expense omission or unrecorded warranties in the scenario given.

While Conducting the Annual Audit of Bluebird Company's Financial Statements