Why are receivables and revenue ripe areas for abuse or outright fraud?Income tax rules have been adjusted in recent years to make it easier to hide revenue from credit sales.OSEC rules have been adjusted in recent years to make it easier to hide revenue from credit sales.No real event, such as the receipt of cash, is necessary to record a debit to Accounts Receivable and a credit to Revenue.Generally accepted auditing standards do not allow auditors to scrutinize the detailed records of credit sales.

Receivables and revenue are ripe areas for abuse or outright fraud as no real event such as actual…

Answered: Why are receivables and revenue ripe…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Although the primary objective of an independent audit is not the discovery of fraud, the auditors in their work on cash take into consideration the high relative associated with this asset. One evidence of this attitude is evidenced by the CPAs alertness on signs of lapping. Define lapping and explain the audit procedures that CPAs might utilize to uncover lapping. 2. What actions should be taken by auditors when the count of cash on hand discloses shortage?
The expense cycle offers employees many opportunities to commit fraud in processing cash purchases and disbursements. Buyers are usually easy targets for suppliers who offer large returns if they are willing to transact more. Analytical procedures are a cost-effective tool to identify misstated accounts in the expense cycle. a. Please list some analytical procedures that can be used by the auditor to estimate the possibility of misstatement and explain the significance of the audit.b. Why does a trade payable turnover day analysis provide a more precise analysis of trade payables than the current ratio?c. Why do auditors pay more attention to debt understatement than debt overstatement?d. Please identify the elements of environmental control that are relevant to initiation and recording of purchases?
Which action is not considered an act discreditable to the accounting profession? a) Being finally determined by a court of competent jurisdiction to have violated any of the federal antidiscrimination laws. b) Having a bank collect notes received from a client in payment of fees. c) Failing to follow standards and procedures established by governmental agencies in audits of grants by those agencies. d) Negligently permitting another to sign a document containing materially false and misleading information.
Do you think the new revenue recognition standard introduced by the FASB-IASB can reduce the likelihood of similar fraud cases caused by improper revenue recognition?
Should the SEC take tolerance on a company that recognizes and reports accounting irregularities and other frauds of the company?
The expense cycle offers employees many opportunities to commit fraudin processing cash purchases and cash disbursements. Buyers usually becomeeasy targets for suppliers who offer large returns if willing to transactmore. Analytical procedures are a cost-effective means of identifying accounts in the expense cycle that are misstated.a. Please list some of the analytical procedures the auditor may use forestimate the likelihood of misstatement and explain the significance of the audit?b. Why a trade payable turnover day analysis provides a more precise analysis of debteffort rather than current ratio?c. Why do auditors pay more attention to debt understatement than debt overstatement?d. Please identify the elements of environmental control that are relevant toinitiation and recording of purchases?
Read the case. Then answer the questions based on it. BACKGROUND: Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve the same objective. However, these instances are considered few and far between and current trends in auditing indicate that there is an expectation that accounts receivable will be confirmed. Auditors may stratify the population, use haphazard or judgmental sampling, and send positive or negative requests. Jenner & Jenner CPAs are the auditors for the Leno Company. In reviewing the accounts receivable aging, the auditors learn that there is a high number of accounts with balances, there are some very large and very small balances, and many customers' balances consist of multiple invoices. 2. How should the auditors mitigate the risk associated with both very large and…
In accounting, which term describes deficiencies or flaws in the design or operation of internal controls that could increase the risk of errors, fraud, or misstatements in financial reporting? a) External audit b) Compliance review c) Internal control weaknesses d) Financial statement analysis

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