According to professional auditing standards,which of the following best represents a type of financial reporting fraud that might occur?
A)Management accrues a liability and discloses the possible outcome of a lawsuit prior to settling the matter.
B)Management reclassifies a negative cash balance by increasing cash and also increasing a current liability.
C)Management discloses its failure to meet loan covenants but states that a waiver has been received.
D)Management intentionally excludes a material subsidiary from its consolidated results that it controls significantly.

Question

Quizplus · Accepted Answer

Intentionally excluding a material subsidiary from consolidated results is a form of financial reporting fraud known as "off-balance-sheet financing." This can be used to manipulate financial statements to make a company appear more profitable or financially stable than it actually is. The other choices (A, B, and C) may involve errors or omissions in financial reporting, but do not necessarily constitute fraud.

According to Professional Auditing Standards,which of the Following Best Represents