Multiple Choice
Which of the following is NOT a way that managers can create and support an ethical organization?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following is a high-risk area for improper or fraudulent conduct?
A
Cash handling and disbursements
B
Inventory valuation using FIFO
C
Recording prepaid expenses
D
Depreciation of fixed assets
Verified step by step guidance1
Understand the context of the question: The problem is asking about high-risk areas for improper or fraudulent conduct in financial accounting. High-risk areas are those where errors or fraud are more likely to occur due to the nature of the transactions or processes involved.
Analyze each option provided: Evaluate why each area might or might not be considered high-risk. For example, cash handling and disbursements often involve physical cash or liquid assets, which are more susceptible to theft or mismanagement.
Consider the characteristics of inventory valuation using FIFO: While inventory valuation can be manipulated to affect financial statements, it is generally less prone to direct fraudulent conduct compared to cash handling.
Evaluate recording prepaid expenses: This area involves allocating expenses over time, which is less likely to involve direct fraud but could involve errors in timing or classification.
Assess depreciation of fixed assets: Depreciation involves systematic allocation of asset costs over time, which is less likely to be a high-risk area for fraud compared to cash handling and disbursements.
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