1a. Select the item that does not relate to fraud risk factors associated with debt obligations.

a. Covenants violation are not properly disclosed

b. Options are backdated

c. Long tern or short term misclassifications

d. Long term or short term authorized

1b. Select the transactions or events that would cause the net assets of the client to decrease. Select all that apply.

A. Closing entry transferring net income to retained earnings.

B. Dividend declared entry for the current period.

C. A loss on a treasury stock reissuance at a price below cost. There were no previous treasury stock reissuances.

D. A debit for a major expense. Management informs the auditor that the amount of the expense would distort the financial statements if it were to be reported in the income statement.

E. The recognition of a director approved appropriation of retained earnings. The offsetting entry was to Appropriated retained earnings for future plant expansion.