Which of the following best represents actions that may indicate fraud is pervasive throughout the company under audit?
A)The company's management negotiates deals with vendors in such a manner as to pay lower prices.
B)The company's management drives luxury vehicles and takes personal vacations to exotic places.
C)The company's management takes an overly aggressive approach to revenue recognition.
D)The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales.

Question

Quizplus · Accepted Answer

Taking an overly aggressive approach to revenue recognition may indicate that the company is intentionally overstating its revenues and profits. This is a red flag for fraud and suggests that it may be pervasive throughout the company. Options A, B, and D are not necessarily indicators of fraud. Negotiating deals with vendors for lower prices is a common business practice, management driving luxury vehicles and taking personal vacations is not necessarily an indicator of fraud, and estimating bad debts using an aged accounts receivables ledger rather than as a percent of sales is a legitimate accounting practice.

Which of the Following Best Represents Actions That May Indicate