Which of the following would be considered financial statement fraud (knowingly making material misrepresentations of fact with the intent of making someone believe the falsehood and suffer a loss as a result of acting upon that falsehood)?
A)Increasing the returns allowance as a result of unusually high sales near year end.
B)Transferring non-performing assets at historical values to a non-consolidated subsidiary.
C)Employee theft from petty cash.
D)Purchasing several months' supply of office supplies in order to qualify for a large volume discount.

Question

Quizplus · Accepted Answer

Transferring non-performing assets at historical values to a non-consolidated subsidiary would be considered financial statement fraud as it would misrepresent the value of the company's assets and deceive stakeholders into thinking that the company has better financial performance than it actually does.

None of the other options involve knowingly making material misrepresentations of fact with the intent of deceiving stakeholders and causing them to suffer a loss. Option A involves increasing returns allowance as a result of high sales, which would be a legitimate business decision. Option C involves employee theft, which is unethical but not financial statement fraud. Option D involves purchasing office supplies to qualify for a discount, which is a legitimate business decision.

Which of the Following Would Be Considered Financial Statement Fraud