Which of the following is NOT the scheme of fixed assets that are subject to manipulation?

Question

Options

• ARelated party transactions
• BBooking fictitious assets
• CMisrepresentation asset valuation
• DImproperly capitalizing inventory and start-up costs

• A
  69% (27)
• B
  15% (6)
• C
  10% (4)
• D
  5% (2)

Explanation

Related party transactions (A) is the correct answer because it is a broad fraud category that can affect many areas of financial reporting - revenue, expenses, liabilities, disclosures - and is not a scheme specific to fixed asset manipulation. Booking fictitious assets (B) is a direct fixed asset scheme where non-existent assets are recorded to inflate the balance sheet. Misrepresentation of asset valuation (C) is also a classic fixed asset scheme involving overstated fair values or failure to record impairment. Improperly capitalizing inventory and start-up costs (D) is a well-known fixed asset manipulation tactic where costs that should be expensed are instead recorded as long-term assets, artificially boosting the balance sheet (famously used in the WorldCom scandal). Memory tip: Think of the three core fixed asset fraud schemes as "FVC" - Fictitious assets, Valuation misrepresentation, and Capitalization abuse - and remember that related party transactions are a general fraud vehicle, not a fixed asset-specific one.

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