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) 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.
D) Monthly fixed asset reconciliation and independent review of the subsidiary ledger with the general ledger

Question

Quizplus · Accepted Answer

The best control activity to address the risk of improperly capitalizing items that are not fixed assets is to perform monthly fixed asset reconciliation and have an independent review of the subsidiary ledger with the general ledger. This ensures that the recorded fixed assets are accurate and any discrepancies or errors can be identified and corrected timely, preventing the misstatement of financial statements.

Capitalizing Items That Are Not Fixed Assets May Result in Inflated