Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations?
A)Sales have increased 5% in the current period over the previous period and is consistent with the results of competitors.
B)Gross margin is equivalent in the current period to previous periods and is below that of the industry.
C)Sales are higher in the month preceding each quarter end.
D)Sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction.

Question

Quizplus · Accepted Answer

Sales being higher in the month preceding each quarter end could indicate intentional timing of revenue recognition to meet financial targets. This is a red flag for auditors to investigate further. The other options do not necessarily suggest revenue recognition fraud.

Fraud Related to Revenue Recognition Will Most Likely Be Identified