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A capital lease is presented as periodic rent expense rather than
interest and depreciation.
A deferred tax asset is reduced to zero with a valuation
allowance.
A stock option is expensed even though the fair value of the
underlying stock on the date of grant was the same as the option's
exercise price.
Revenues for up-front fees are deferred rather than recognized
immediately.
48. The audit of financial statements includes the initial approach
of addressing fraud. How must an auditor address fraud in the
planning stage? (Points: 4)
The auditor must test for fraud in the planning stage by
sampling accounts.
The auditor must consider the likelihood of fraud existing in the
company in the planning stage.
The auditor must realize that most people are honest and not
automatically assume that fraud exists when planning the audit.
The auditor must not be aggressive in its initial approach to
fraud as trust may be lost by the client.
49. Which of the following creates an opportunity for fraud to be
committed in an organization? (Points: 4)
Management demands financial success.
Poor internal control.
Commitments tied to debt covenants.
Management is aggressive in its application of accounting
rules.