Fraudulent related-party transactions are discovered by doing the following:
A) Examining large or unusual transactions.
B) Looking under the "fraudulent related-party transactions" in the notes to the financials.
C) Examining the actual existence of physical assets.
D) Examining the backgrounds of managers/board members for criminal records.

Question

Quizplus · Accepted Answer

A: correct.
B: incorrect because there is no "fraudulent related-party transactions" section in the notes to the financials.
C: incorrect because generally companies test the actual existence of physical assets to understand the financial results and operating characteristics. This is the fourth segment of the fraud exposure rectangle.
D: incorrect because examining the backgrounds of managers/board members will help you understand management and the board, but it won't help you examine their relationships with others. The key to finding related-party transactions is to look for large or unusual transactions and examine the parties involved in these transactions.

Fraudulent Related-Party Transactions Are Discovered by Doing the Following