What are some of the risk factors that indicates that financial
statements may be misstated and...
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Accounting
What are some of the risk factors that indicates that financialstatements may be misstated and the potential risks factors thatthis might and how to address the risks of materialmisstatements
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Factors that indicates that Financial Statement may be misstated 1 Overstating Revenues Because net income equals revenue minus expenses any time revenues are overstated net income also will be overstated Revenue can be overstated by doing the following Recording fictitious revenue Recognizing revenue prematurely Understating sales returns 2 Understating Expenses Understating expenses is a fraudulent technique that has the same effect on net income as overstating revenues Because net income equals revenue minus expenses any time expenses are understated net income will be overstated Expenses can be understated by Postponing expense recognition Capitalizing expenses ie recording an expense as an asset 3 Understating Liabilities The fewer liabilitiesor the less debta company has the healthier and less risky it appears Because the balance sheet must
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