Question

What is the common indicator of fraud recognized by the internal auditor in this scenario?

A. The purchasing agent is selecting the contractor on the basis of a blanket purchase order.
B. Paint and supplies are being purchased for a contractor.
C. Invoices are being authorized for payment by the general manager.
D. Analytical procedures revealed an extraordinary increase in account balances.

Answer 1

An extraordinary increase in account balances identified by analytical procedures is a common indicator of fraud recognized by the internal auditor. The correct option is D. Analytical procedures revealed an extraordinary increase in account balances.

Step-by-step explanation:

The common indicator of fraud recognized by the internal auditor in this scenario is D. Analytical procedures revealed an extraordinary increase in account balances. This could signify that there are irregular transactions that are inflating the account balances, potentially indicating fraudulent activities.

Auditors often use analytical procedures as a part of their auditing process to identify trends, ratios, and other factors that should reasonably correlate with other financial data.

An extraordinary increase in account balances that cannot be explained by normal business operations is a red flag that may prompt a deeper investigation into the transactions and the possibility of fraud. The correct option is D. Analytical procedures revealed an extraordinary increase in account balances.