Question

Which of the following is NOT true regarding "topside" journal entries used to commit financial statement fraud?

1) They are used to manipulate financial statements.
2) They are recorded outside of the normal accounting system.
3) They are typically made by top-level executives.
4) They are always detected during audits.

Answer 1

The statement that topside journal entries are always detected during audits is false. While they are used for financial statement manipulation and often made by top-level executives, not all such fraudulent entries are caught during audits.

Step-by-step explanation:

The statement that is NOT true regarding "topside" journal entries used to commit financial statement fraud is: 4) They are always detected during audits. Topside journal entries are indeed used to manipulate financial statements and are typically recorded outside of the normal accounting system, often by top-level executives. However, the assertion that they are always detected during audits is false.

Audits are designed to detect material misstatements, but some topside adjustments can be missed, especially if they are carefully concealed or if the auditors are not sufficiently diligent or skilled.The correct answer is 4) They are always detected during audits. Topside journal entries are a common method used to manipulate financial statements and commit financial statement fraud. They are typically recorded outside of the normal accounting system and are often made by top-level executives. However, it is important to note that they are not always detected during audits.