42. Which of the following is most likely to be a response to the auditor's assessment that the risk of material misstatement due to fraud for the existence of inventory is high? a. observe test counts of inventory at certain locations on an unannounced basis b. perform analytical procedures rather than taking test counts c. request that inventories be counted prior to year end d. request that inventory counts at the various locations be counted on different dates so as to allow the same auditor to be present at every count e. none of the above 43. Smart embezzlers realize that when making false journal entries, reducing ___________is not a good concealment method. a. Time spent at work b. Liabilities c. Management interaction d. Time spent making journal entry 44. Which of the following is not a form of vendor fraud? a. Overcharge for purchased goods b. Shipment of inferior goods c. Nonshipment of goods even though payment is made d. Not paying for goods purchased e. None of the above 37. Which of the following is NOT useful in detecting fraud that non-existent assets are recorded in statement accounts? a. Total fixed assets/total assets. b. Total fixed assets/long-term debt. c. Individual fixed asset account balances/total fixed assets. d. Fixed assets/total current liabilities. 38. In doing vertical analysis of an income statement, you notice that cost of goods sold increased from 50% of sales in year 1 to 60% of sales in year 2. A possible explanation is: a. Inventory costs rose faster than sales prices. b. Inventory is being stolen. c. The accounting records are not accurate. d. All of the above. 39. When management creates fictitious revenues, it ______________current year's income and ________________the next year's income. a. Overstates, does not affect b. Overstates, overstates c. Understates, overstates d. Overstates, understates 40. When management overstates inventory, it ________________current year's income and ___________________the next year's income. a. Overstates, does not affect b. Overstates, overstates c. Understates, overstates d. Overstates, understates 41. If skimming has been in practice for years in a business, why might it be hard to detect using horizontal analysis? a. Comparing a year in which receipts have been skimmed to other years in which receipts have been skimmed will usually not reveal differences b. Horizontal analysis is typically performed in industries that have high skimming rates c. Gross margins for the industry typically will not reveal any fraud when evaluated via horizontal analysis d. Skimming typically is revealed on the income statement and horizontal analysis is only done on balance sheet accounts e. None of the above