Question

Auditors are often concerned with the possibility of overstatement of sales and receivables. However, management may also have reasons for understating these balances. Which of the following would explain understatement of sales and receivablesI. To avoid paying taxesII. To windowdress the financial statementsIII. To meet budgets and forecastsa. I onlyb. II onlyc. I and III onlyd. I, II, and III

Answer 1

Answer:

A) I only:

        I) To avoid paying taxes

Explanation:

If a business's sales and/or receivables are understated, they will pay less taxes. A company pays taxes based on their total sales (state sales tax) and net income (federal taxes). Even if you do not pay sales tax in your state, your net profit is calculated based on your total sales. They can also reduce receivables by considering them uncollectible even if they aren't, that way their total sales will lower.