Question

Olivia is the CFO of a company that sells advertising on the web. She is well-qualified for the job, with a CPA, an MBA and many years of experience in accounting and finance for internet companies.

The company places ads for various companies and receives payment based on the number of times the ad is clicked. The amount of click-based revenue continues to grow as a proportion of the company's overall income, and there are a number of difficult accounting judgments associated with revenue recognition.

Roughly half of Olivia's compensation is paid as a part of the year-end bonus on earnings results. Olivia has a good relationship with the audit team and the board. They ask about revenue recognition every quarter. Olivia is always on top of things and has all the information that anyone asks for. Based on the information Olivia has presented, the revenue looks solid.

Which of the following is NOT true?

		There is little risk of revenue-related fraud, since Olivia is well-qualified, has command of the relevant information, there is an external audit and the board is asking questions each quarter.
		The existence of a significant amount of variable compensation based on earnings increases the risk of fraud or manipulation of earnings results to meet performance targets.
		Although Olivia seems entirely competent, there is always a risk of management override, particularly if the auditors and the board are reliant on Olivia for most of their information.
		The existence of complexity in the internet-based revenues and the accounting judgments increases the opportunity for fraud, as compared to a simple, objective revenue process.

Answer 1

Solution:-

Which of the following is not true:-

D. The existence of complexity in the internet-based revenues and the accounting judgments increases the opportunity for fraud, as compared to a simple, objective revenue process.

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