Which of the following best represents actions that may indicate fraud is pervasive throughout the company under audit?
A)The company's management negotiates deals with vendors in such a manner as to pay lower prices.
B)The company's management drives luxury vehicles and takes vacations to exotic places.
C)The company's management takes an overly aggressive approach to revenue recognition.
D)The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales.

Question

Quizplus · Accepted Answer

An overly aggressive approach to revenue recognition could indicate that management is trying to manipulate financial statements to show higher revenue than what is actually being earned, which is a red flag for fraud. Options A, B, and D do not necessarily indicate pervasive fraud in the company. Negotiating deals for lower prices, driving luxury vehicles, and estimating bad debts using an aged accounts receivables ledger can all be legitimate business practices.

Which of the Following Best Represents Actions That May Indicate