An important consideration in assessing inherent risk for purchase transactions is any motivation management may have to misstate expenditure. Which of the following is not a factor that may contribute to misstatement?
A) the need to achieve announced profitability targets.
B) the need to disclose concern over control problems.
C) temptations for employees to make unauthorized purchases.
D) temptations for employees to misappropriate purchased assets.

Question

Quizplus · Accepted Answer

The need to disclose concern over control problems would not contribute to misstatement. In fact, this factor would likely lead to management being more cautious and accurate in their reporting of expenditures. On the other hand, the other factors listed (the need to achieve announced profitability targets, temptations for employees to make unauthorized purchases, temptations for employees to misappropriate purchased assets) could all create incentives for management to misstate expenditure.

An Important Consideration in Assessing Inherent Risk for Purchase Transactions