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In the context of fraud, which of the following statements is false?
A Deliberate manipulation of depreciation figures is difficult because of its cash flow effects.
B Fraudulently understating expenses will inflate the reported profit figure.
C Selling goods to friends (with a promise of buying them back at a later date) is potentially
fraudulent.
D Employees within or outside the payroll department can perpetrate payroll fraud.the answer giving was A
good day tutor my problem with this question is that the answer given in the BPP pack states that depreciation as no effect in the cashflow statement.
But during my F3 study we add back depreciation to cash from operating activities.
probably there was a mistake in the answer giving whats your take on this SIR
B, C and D are all obviously true.
Deliberately manipulating depreciation is easy: just put through a journal entry. If dpreciation is reduced profit will be increased. There is no effect on cash so all the controls that often relate to cash are irrelevant.
When working out the profits needed for your cash flow statement you have to think about the profit figure you are starting with. The normal profit figure will already have had depreciation deducted, but the depreciation does not affect cash flow. If you want to know what cash has been generated by profits then you have to add back the depreciation charge.
What the BPP pack means is that depreciation does not reduce the cash generated by operations.
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