Question 2 (8 marks)

a. The following misstatements are included in the accounting records of Johnsons Manufacturing Company:

1. A purchase order was in error by $2 000 as a result of a key-entry mistake.
2. A credit sale was unintentionally posted as a cash sale. Instead of debit to account receivable, it was mistakenly debited to cash account.
3. The customer payment cheque was stolen by the mailroom clerk when the mail was opened.
4. The employee inflated his timesheet by 10 hours and he ended up being paid $300.

Required: Identify whether each misstatement is likely to be an error or a fraud. (4 marks)

b. There are two types of fraud: misappropriation of assets and fraudulent financial reporting. Identify if the following is misappropriation of asses or fraudulent financial reporting?

1. Setting up false vendors and paying the vendors for fictitious goods

2. Overstating expense reimbursement requests

3. Misrepresentation or omission of transactions

4. intentional misapplication of accounting principles