Audit and Assurance Practice Exam

What signifies 'skimming' in terms of employee fraud?

1. Recording sales at an unauthorized discounted price.

2. Diverting funds from customer accounts into personal accounts.

3. The misappropriation of funds before they are recorded.

4. Intentionally underreporting hours worked for payment purposes.

The correct answer is: Recording sales at an unauthorized discounted price.

The term 'skimming' in the context of employee fraud specifically refers to the misappropriation of funds before they are recorded in the accounting system. This means that the employee can steal cash or other assets before it is documented in the company's financial records, thus making it difficult to detect the fraud. In this regard, the correct choice focuses on the act of taking funds without it being tracked or recorded in a way that could be easily identified during an audit or routine accounting process. Skimming typically occurs in scenarios involving cash sales or cash transactions, where the employee has the ability to take funds before they are officially logged. The other options reflect different types of fraudulent behaviors but do not align with the definition of skimming. For instance, diverting funds from customer accounts or intentionally underreporting hours worked involves different mechanisms of fraud that occur after transactions have been recorded or through manipulation of records, rather than the initial misappropriation of funds prior to their documentation.