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In june 20X5 a fraud was uncovered in the finance department. A payables ledger supervisor had diverted funds from the company’s bank account using a fictitious supplier on the payables ledger. The employee was immediately dismissed and the value of the fraud will be recognised as an expense in the statement of profit or loss
Why would this lead to payables being overstated because the fictitious supplier may have been paid from the bank account. so the payables balance would be nil.The nature of the fraud gives rise to overstatement of payables while payment is pending. But as you say, once paid, there is no such overstatement.
(I could help you more easily/give more explanation in context if you stated the source of your query.)
I don’t know Qs by name – but I can see it is in M/J21 where you are asking about Castle Courier
In the answer it says:
“If additional frauds committed by the payables ledger
supervisor are not discovered, this COULD result in expenses
being understated and payables being overstated.”It doesn’t say that it WILL – as you say, if paid, there will be no overstatement.
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