Senior management of Mega Corp. is entitled to receive large bonuses if they achieve earnings targets. What is the effect of this on the risks associated with recording of revenue?
A) It increases inherent risks associated with revenue cutoff and existence assertions.
B) It increases inherent risks associated with revenue cutoff and completeness assertions.
C) It increases control risks associated with revenue cutoff and existence assertions.
D) It increases control risks associated with revenue cutoff and completeness assertions.

Question

Quizplus · Accepted Answer

The incentive to achieve earnings targets can lead to manipulation or misstatement of revenue, increasing inherent risks related to the cutoff (timing of revenue recognition) and existence (validity of recorded revenue) assertions.

Senior Management of Mega Corp