Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

Financial Accounting

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

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Multiple Choice

Which type of fraud risk is increased by incorrectly or arbitrarily assigning common costs to segments within an organization?

Overstating cash balances

Understating inventory levels

Omitting liabilities from the balance sheet

Misstatement of segment profitability

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Verified step by step guidance

Understand the concept of common costs: Common costs are expenses shared by multiple segments within an organization, such as administrative overhead or shared facilities. These costs must be allocated fairly to avoid distorting financial results.

Recognize the impact of incorrect allocation: If common costs are arbitrarily or incorrectly assigned to segments, it can lead to inaccurate reporting of segment profitability. This misstatement can affect decision-making and performance evaluation.

Identify the fraud risk: Misstatement of segment profitability is the fraud risk associated with improper allocation of common costs. This can occur if costs are intentionally shifted to make one segment appear more profitable or less profitable than it truly is.

Consider the consequences: Misstating segment profitability can mislead stakeholders, such as investors or management, and may result in unethical practices like manipulating financial results to achieve desired outcomes.

Ensure proper allocation methods: To mitigate this risk, organizations should use consistent and rational methods for allocating common costs, such as activity-based costing or proportional allocation based on usage or revenue contribution.