If earnings on financial statements for internal use only have been manipulated in the past, an internal auditor is likely to focus on which of the following?
If earnings on financial statements for internal use only have been manipulated in the past, an internal auditor is likely to focus on which of the following?
If earnings on financial statements have been manipulated, an internal auditor would focus on areas where financial results can be easily distorted to inflate earnings. The timing of revenue recognition is crucial because premature or delayed revenue recognition can significantly alter financial results. Similarly, the valuation of inventories affects the cost of goods sold, which in turn impacts profit margins. Ensuring accurate revenue recognition and inventory valuation helps to detect and prevent earnings manipulation.
Maybe because premature revenue recognition is one of the examples of financial statement fraud
This is how I got to B as my answer. The financial statements were MANIPULATED = Material Misstatement = Executive fraud = benefit the Organization How do they usually do it? 1. By overstating Assets + Revenue 2. By understating Expenses + Liabilities This will be auditors starting point. There is no expense and liability mentioned as an answer, however Assets and Liabilities were mentioned in answer and they talk about earnings in the question.
Inventory valuation can alter the cost of goods sold and thus the gross margin. This has an impact on the balance sheet inventory and on the expenses (debit of the income statement).
Answer not clear. Little bit expiation would be helpful.
why B? Inventories are not even mentioned in the question.
the is Clue - earnings on financial statements which means revenue recognition
Correction "Assets and Revenue is mentioned