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4. Which of the following activities or events would be considered fraud?
A. Recording an income transaction that lacks economic substance
B. Misinterpreting supporting information that results in underreporting periodic depreciation expense
C. Including cheques in the sales ledger that were already recorded the previous monthThe correct answer is A.
Acca explanation :
An organisation that records a transaction that lacks economic substance would be engaging in a fraudulent activity. Under-reporting or over-reporting account activity that was done without an intention to deceive is an accounting error.Query : I don’t understand why C is also not correct along with A. Is C not windowdressing which is considered an offence?
With regard to C, if the cheque receipts had been recorded the previous month then with respect to those sales invoices, no amount would due be recorded as the debts had been paid:
Dr Cash, Cr Customer’s account in the sales ledger.
If the receipt is now recorded again, their would presumable be a repeat of that entry. Although cash would be too high there would now be an amount showing as owing to the customer so an increase in liabilities and I don’t think that is window-dressing Profit is not affected . Also, C does not contain an implication that this posting is deliberate. It could be a simple error and that would not qualify as fraud. Fraud is defined as something like:
“Fraud” is any activity that relies on deception in order to achieve a gain. Fraud becomes a crime when it is a “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.
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