Capitalizing items that are not fixed assets may result in inflated net income and assets, financial statement misstatements, fines and penalties, or reputational damage. Choose the best control activity to address this risk.
A) Expand the list of bidders to make it more difficult for bidders to collude.
B) Require bidders to sign and submit non-collusion affidavits stating the bidder has not colluded with employees or other bidders.
C) Periodically checking physical fixed assets against the fixed asset records
D) Have a code of conduct that employees must agree to and sign, as well as training for employees that includes firing and legal actions for engaging in fraud.

Question

Quizplus · Accepted Answer

Periodically checking physical fixed assets against the fixed asset records helps ensure that the assets recorded in the financial statements actually exist and are properly classified, addressing the risk of inflating net income and assets through improper capitalization.

Capitalizing Items That Are Not Fixed Assets May Result in Inflated