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Basic Question 3 of 5
A pharmaceutical company has been very successful for the past several years, increasing its sales many-fold over that of its competition. It has been able to meet or beat analysts' optimistic quarterly earnings estimates and consistently registers very high sales towards the end of each quarter. Most of the company's sales are to two of its major wholesalers. The firm covers the carrying costs for these two wholesalers and guarantees them a return on investment until the wholesalers sell the products.
B. Incentives/Pressures
C. Attitudes/Rationalizations
Which of the three risk factors related to fraudulent financial reporting would best explain the behavior of this company?
A. Opportunities
B. Incentives/Pressures
C. Attitudes/Rationalizations
User Contributed Comments 3
| User | Comment |
|---|---|
| Safiya921 | High sales towards the end of the quarter indicate a red flag of being pressured into achieving certain targets/ expectations set by management. The company did not make use of certain chances, nor did it explain certain behaviors by the sales team. So answers A & C are incorrect. |
| lux240392 | thank you :) |
| kingirm | where all these are written ? |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe general principles of revenue recognition, specific revenue recognition applications, and implications of revenue recognition choices for financial analysis
CFA® 2025 Level I Curriculum, Volume 2, Module 2.