Question

Which type of misstatement is always a fraud?

A) sales included in the journals for which no shipment was made
B) sales to related parties, such as officers and subsidiaries
C) shipments made to nonexistent customers and recorded as sales
D) sales recorded more than once.

Answer 1

Shipments made to nonexistent customers and recorded as sales is the type of misstatement that is always a fraud. This involves intentionally creating fictitious customers and recording sales transactions to falsely inflate the company's revenue and profits.

Step-by-step explanation:

The type of misstatement that is always a fraud is option C) shipments made to nonexistent customers and recorded as sales.

This type of misstatement involves intentionally creating fictitious customers and recording sales transactions, which results in falsely inflating the company's revenue and profits. It is a deliberate act of deception and a form of fraudulent financial reporting.

For example, a company may create fake sales invoices for products that were never actually sold to customers that don't exist. By recording these fictitious sales, the company can manipulate its financial statements to portray a better financial performance than what actually occurred.