QUESTION 18 A company has a signed contract for a credit sal

QUESTION 18

A company has a signed contract for a credit sale of product to a customer but has not specified a price to be charged. The product has been delivered and therefore the company book the revenue.

True

False

QUESTION 19

Channel stuffing should be looked at with a very skeptical eye by auditors because the buyer does not take delivery.

True

False

QUESTION 20 Match the fraudulent financial statement action with the harm it does. ·Lots of financial statement fraud covered in the A Undermining the reliability, quality, transparency, and B. o news. Public has great concerns over the financial data egrity of the financial reporting process that it consumes Adverse affect on economic growth. profession Huge litigation cost and contingent liabilities. Erosion of public confidence and trust in the accounting L\'Executives encourage the manipulatoon of earnings so C. Jeopardizing the integrity and objectivity of the auditing as to meet financial goals. Corporation and auditors are being brought to court as a D result of class action suits brought by small and large investors who have been misled. profession. The accountant\'s responsibilities also include providing information that is comparable so that investors can select among alternative investments. When that duty is not met and misleading information is released the efficiency of our capital markets suffers Auditors should be watchdogs making sure that financial statements are free from material misstatements but sometimes auditors fail terribly in that role

Solution

Answer to Q. 18

Reveune Recognition merely on the basis of delivery of the product is not justifiable, agreement is not specifying any price, then the main part is, at what price revenue is to be recognised, that\'s why without price fixing, it is not possible.

In this case, as no price is specified in the agreement, company can not recognis revenue in its books and therefore the given statement,\"A company has a signed contract for a credit sale of product to a customer but has not specified a price to be charged. The product has been delivered and therefore the company book the revenue\", is False.

Answer to Q. 19

First we have to understand what is channel stuffing?

A deceptive and illegal retail business practice in which a company sends more inventory than could be sold to stores along its distribution channel. Generally it is a fictitious revenue recognition technique.

So from the above meaning of channel stuffing, it is clear that the statement \" Channel stuffing should be looked wih a very skeptical eye by auditors because the buyerdoes not take delivery\" is correct, i.e. true.

Answer to Q. 20

1. Lots of financial statement fraud covered in the news. Public has great concerns over the financial data that it consumes. :-  correctly matches with \'E\' Erosion of public trust and confidence over accounting profession. Explanation: As public read the news of fraud, then pubilc is not sure over the accounting data provided by accounting professionals.

2. Executives encourage the manipulation of earnings so as to meet the financial goals.:-  correctly matches with \'A\' Undermining the reliability, quality, integrity and transparency of fiancial reporting process. Explanation: Trust over financial reporting process is lost when there is manipulation in such process.

3. Corporations and auditors are being brought to court as a result of class action suits brought by small and large investors who have misled.:-  correctly matches with \'D\' Huge Litigation cost and contingent liabilities. Explanation: Making a class action suit is a very expensive process, including legal and litigation cost, also create some contingent liability over the company.

4. The accountants responsibilities also include providing information that is comparable so that investors can select among alternatives investments. when the duty is not met and misleading information is released the efficiency of our capital market suffers.:-  correctly matches with \'B\' Adverse effect on economic growth.   Explanation: When efficiency of capital makets are down, they directly affects economic growth of that country.

5. Auditors should be the watchdogs making sure that financial statements are free from material misstatements but sometimes auditors fail terribly in that role.:-  correctly matches with \'E\' Jeopardizing the integrity and objectivity of auditing profession.   Explanation: when auditor does not take there professional conducts seriously, it dangers the value and reliability of there profession.