Question

Which of the following best represents fraud related to financial reporting?

a. The controller of the company decreases warranty expense by $3 million because the company will otherwise miss analysts' expectations this quarter
b. The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization
c. The in-house attorney receives payments from the French government for negotiating the development of a new plant in Paris
d. The transfer agent issues 40,000 shares of the company's stock to a friend without authorization by the board of directors

Answer 1

a. The controller of the company decreases warranty expense by $3 million because the company will otherwise miss analysts' expectations this quarter.

Step-by-step explanation:

Financial reporting compliance as stated by US GAAP clearly mentions that the accounts prepared shall show true and fair view.

By the term true and fair view it means all the amount provided in the books are accurate, and reliable.

Here, in the given instance the warranty expense is under disclosed, that is the amount shown is less than actual just to meet the analyst's expectations.

Other options like, option b clearly does not represent any unfair amount, it just shows the reason false, for fair balances.

There is no problem in option c.

There is no financial reporting fraud in option d.

Therefore, correct answer is

a. The controller of the company decreases warranty expense by $3 million because the company will otherwise miss analysts' expectations this quarter.