Exam IIA-CIA-Part2 topic 2 question 10 discussion

Actual exam question from IIA's IIA-CIA-Part2

Question #: 10
Topic #: 2

A manager of one of a retailer's several retail outlets is stealing cash from cash sales, recording the sales as accounts receivable, and subsequently writing off the fictitious accounts receivable as bad debts. Which of the following comparisons would be most effective in signaling the possibility of such a fraud?

A. Bad debt expense as a percentage of sales, compared to that of the other outlets.
B. Bad debt expense as a percentage of sales, compared to that of previous years.
C. Percentage of past-due accounts receivable, compared to that of the other outlets.
D. Percentage of past-due accounts receivable, compared to that of previous years.

Show Suggested Answer

Suggested Answer: A 🗳️

by whatup at June 11, 2020, 3:13 p.m.

Comments

Submit Cancel

Sangy_jo

1 year, 6 months ago

Why A and B

upvoted 1 times

John1237

12 months ago

Comparing percentages (C and D) is not a good procedure because the weight of a single entry can be significant. Here, the outlets have similar activities. Thus a simple internal benchmark would make it possible to observe differences (option A). If the thief had been managing several retail outlets for a while, option B would be more appropriate.

upvoted 1 times

...

KonradK

1 year, 6 months ago

This store has a suspicious actions from the manager, however, fraud cannot be identified if IA compare results to prior years of this give store performance as manager might change. Just one example. It is better to compare performance of the store to other stores owed by the retailer. Hope that helps.

upvoted 1 times

...