FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
A risk analyst reviews a case in which a firm's finance team inflated reported revenue by recording sales before delivery to meet analyst expectations. Which statement best characterizes this fraud?
It is fraudulent financial reporting, a management-driven manipulation of financial statements. Recording sales before delivery overstates revenue to meet expectations. No assets were stolen, the perpetrators are insiders, and the use of systems does not make it a cyber event.
- AIt is misappropriation of assets because cash was stolen
- BIt is fraudulent financial reporting, a form of management-driven financial statement fraudCorrect
- CIt is external fraud since investors were misled
- DIt is a cyber event because systems recorded the sales
Explanation
Premature revenue recognition to meet expectations is financial statement manipulation by insiders. No assets were stolen, and the victims being external does not make the perpetrators external.
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