Which of the following pieces of information discovered by an auditor when performing substantive tests of account balances would most likely raise red flags about the possible existence of material fraudulent financial reporting?
A)Paper copies of paid invoices and cancelled checks are microfiched and then destroyed.
B)The controller requires that you schedule any audit inquiries for after lunch each day,not in the morning.
C)The petty cash fund custodian never takes a vacation.
D)The client's estimate of the allowance for doubtful accounts is lower than the auditor's independent evaluation of the allowance.

Question

Quizplus · Accepted Answer

A lower estimate of the allowance for doubtful accounts may indicate understatement of bad debt expenses and overstatement of net income, which could be a sign of fraudulent financial reporting. The other options do not necessarily indicate fraudulent activity.

Which of the Following Pieces of Information Discovered by an Auditor