The auditor should be aware of the possibility that management may be manipulating earnings by inappropriately expensing capital items or inappropriately capitalizing expense items.

Question

Quizplus · Accepted Answer

This is true. The auditor should be alert to the possibility that management may manipulate earnings by incorrectly expensing capital items or incorrectly capitalizing expense items. This is particularly common with companies that are under pressure to meet analyst expectations or other performance measures. The auditor should carefully evaluate the accounting policies related to capitalization and expense recognition to ensure that they are properly applied and supported by appropriate documentation.

The Auditor Should Be Aware of the Possibility That Management