An entity's financial statements were misstated over a period of years due to large amounts of revenue being recorded in journal entries that involved debits and credits to an illogical combination of accounts. The auditor could most likely have been alerted to this fraud by:
A)scanning the general journal for unusual entries.
B)performing a revenue cutoff test at year-end.
C)tracing a sample of journal entries to the general ledger.
D)examining documentary evidence of sales returns and allowances recorded after year-end.

Question

Quizplus · Accepted Answer

By scanning the general journal, the auditor may be able to identify unusual entries such as debits and credits to illogical combinations of accounts, which could indicate fraudulent activity. Performing revenue cutoff tests and tracing journal entries to the general ledger may not necessarily reveal the specific fraud that occurred. Examining sales returns and allowances recorded after year-end would not be relevant for detecting the misstatements in the revenue accounts.

An Entity's Financial Statements Were Misstated Over a Period of Years