The gross profit (margin) ratio is calculated by dividing gross profit by cost of goods sold.
17 Aug 2021Controls over inventory should be closely examined when searching for fraud symptoms.
17 Aug 2021Focusing on changes in financial statements from period to period can help identify analytical fraud symptoms.
17 Aug 2021Comparing financial results and trends of a company with those of similar firms is an ineffective way to look for fraud symptoms.
17 Aug 2021A "sales discounts" amount that appears too low could be a fraud symptom.
17 Aug 2021An increase in gross margin and an increase in number of days sales in inventory could be an indication of inflated inventory fraud.
17 Aug 2021The most common accounts manipulated when perpetrating financial statement fraud are revenues and accounts receivable.
17 Aug 2021Performing a horizontal analysis of the statement of cash flows is an excellent way to proactively search for revenue-related financial statement fraud.
17 Aug 2021Two reasons revenue-related financial statement fraud is so prevalent are because revenue recognition can be highly subjective and because revenue is so easily manipulated.
17 Aug 2021Understated revenues and understated net income are among the most common types of financial statement fraud.
17 Aug 2021How can comparing financial statement amounts with actual assets they are supposed to represent help determine if fraud is present?Here is a tip:A financial statement of the company includes income statement, cash flow statement, and balance sheet.
17 Aug 2021What is the effect on net income of overstating ending inventory?Here is a tip:Net income is determined after deducting the current year cash as well as the non-cash expenses from the current year revenue earned.
17 Aug 2021What is the effect on net income of not recording sales returns?Here is a tip:Sales return is also known as return inwards by the customer.
17 Aug 2021Why do you suspect that revenue-related financial statement fraud schemes are most common and inventory-related fraud schemes are next most common?Here is a tip:Financial statement fraudis the intended act of misreporting the data recorded in the financial statements through misi...
17 Aug 2021What are common-size financial statements?Here is a tip:Common size financial statements shows the easy comparison of the performance from prior years
17 Aug 2021What are some of the ways to proactively search for inventory-related financial statement fraud schemes?Here is a tip:The voluntary manipulation of inventory or its records is called inventory frauds.
17 Aug 2021What are some of the most common inventory related financial statement fraud schemes?Here is a tip:The voluntary manipulation of an inventory or its records is called inventory frauds.
17 Aug 2021Why is it important to follow up on revenue related fraud symptoms?Here is a tip:Symptoms act as alarming indicators of a specific activity.
17 Aug 2021What are some possible ways to proactively search for revenue-related financial statement fraud schemes?Here is a tip:Fictitious revenues refer to those revenues that are not received or earned by the company, and are yet written in the books of accounts.
17 Aug 2021What are some common revenue-related financial statement fraud schemes?Here is a tip:Fictitious revenues refer to those revenues that are not received or earned by the company; however, they are still written in the books of accounts.
17 Aug 2021What are some potentially legitimate reasons for a company to have high inventory balances?Here is a tip:Inventories are the assets of the company that are sold to generate revenues.
17 Aug 2021What are some potential problems with using anonymous whistle-blowing systems?Here is a tip:Whistleblower is a person in an organisation who reports or informs an illegal or unlawful activity.
17 Aug 2021One of the most controversial topics to affect the accounting profession has been that of earnings management. Companies have been trying to manage their earnings to match analysts projections.While the accounting literature doesnt give accounting professionals a clear definition...
16 Aug 2021Some people believe that the audit industry has fallen out of touch with the realities of business. They believe that accounting standards were developed for a manufacturing environment and are not fitted for our modern needs. As a result, they contend that financial statements h...
16 Aug 2021The Internet is a great place to find additional information about financial statement fraud. Using your favorite Internet search engine, tryvarious word combinations to see what you can find about financial statement fraud. For example, type in the search window "financial state...
16 Aug 2021The SEC charged Midisoft Corporation with overstating revenue in the amount of $458,000. The overstatement occurred because the company recorded sales for products that had been shipped but, at the time of shipment, the company had no reasonable expectation that they would be pai...
16 Aug 2021In April 1997 Bre-X Minerals, a Canadian company, was supposedly one of the most valuable companies in the world. Bre-X had convinced numerous mining experts that they had rights to one of the largest gold deposits ever discovered. It was hailed as the mining find of the century....
16 Aug 2021In April 1997 Bre-X Minerals, a Canadian company, was supposedly one of the most valuable companies in the world. Bre-X had convinced numerous mining experts that they had rights to one of the largest gold deposits ever discovered. It was hailed as the mining find of the century....
16 Aug 2021In April 1997 Bre-X Minerals, a Canadian company, was supposedly one of the most valuable companies in the world. Bre-X had convinced numerous mining experts that they had rights to one of the largest gold deposits ever discovered. It was hailed as the mining find of the century....
16 Aug 2021In April 1997 Bre-X Minerals, a Canadian company, was supposedly one of the most valuable companies in the world. Bre-X had convinced numerous mining experts that they had rights to one of the largest gold deposits ever discovered. It was hailed as the mining find of the century....
16 Aug 2021You are a fraud investigator who has been hired to detect financial statement fraud for the Chipmunk Company. You have been provided with the financial statements on the following pages and are now beginning your analysis of those financial statements. Please note: the balance in...
16 Aug 2021You are a fraud investigator who has been hired to detect financial statement fraud for the Chipmunk Company. You have been provided with the financial statements on the following pages and are now beginning your analysis of those financial statements. Please note: the balance in...
16 Aug 2021You are a fraud investigator who has been hired to detect financial statement fraud for the Chipmunk Company. You have been provided with the financial statements on the following pages and are now beginning your analysis of those financial statements. Please note: the balance in...
16 Aug 2021For each of the following red flags, identify which fraud exposure the risk falls under: management and directors, relationships with others, organization and industry, or financial results and operating characteristics.1. The personal worth of directors is tied up in the organiz...
16 Aug 2021Compare and contrast financial statement fraud with embezzlement and misappropriation, especially with respect to who usually commits the fraud. Also contrast the different kinds of fraud with respect to who benefits from the fraud.
16 Aug 2021ABC Company manufactures and sells software packages to small businesses. The company has enjoyed great success since it began business in 1998. Last year, the firm doubled its revenues, and its management is now looking closely at going public by making an initial public offerin...
16 Aug 2021After Enron, WorldCom, and other major corporate scandals that rocked America in the recent past, it seemed that nothing would surprise investors or regulators. However, almost everyone was shocked by revelations that as many as 20 percent of all public corporations may have allo...
16 Aug 2021An electronics company that produced circuit boards for personal computers was formed in a small southern town. The three founders had previously worked together for another electronics company and decided to start this new company. They ended up as senior officers and members of...
16 Aug 2021In recent years, many SEC investigations have taken place on the improper issuance of stock options to corporate executives. These practices increase executive compensation at the expense of shareholders. This practice is known as:a. Backdrafting stock options.b. Backdating stock...
16 Aug 2021In the context of strategic reasoning, if an auditor only follows the established audit plan and does not consider other factors relating to the auditee, then this is an example of which of the following?a. Zero-order reasoning.b. Higher-order reasoning.c. First-order reasoning.d...
16 Aug 2021During an audit, an auditor considers the conditions of the auditee and plans the audit accordingly. This is an example of which of the following?a. Zero-order reasoning.b. High-order reasoning.c. First-order reasoning.d. Fraudulent reasoning.
16 Aug 2021All of the following are indicators of financial statement fraud except:a. Unusually rapid growth of profitability.b. Threat of a hostile takeover.c. Dependence on one or two products.d. Large amounts of available cash.
16 Aug 2021Management fraud is usually committed on behalf of the organization rather than against it. Which of the following would not be a motivation of fraud on behalf of an organization?a. CEO needs a new car.b. A highly competitive industry.c. Pressure to meet expected earnings.d. Rest...
16 Aug 2021Most financial statement frauds occur in smaller organizations with simple management structures, rather than in large, historically profitable organizations. This is because:a. It is easier to implement good internal controls in a small organization.b. Smaller organizations do n...
16 Aug 2021In the Phar-Mor fraud case, several different methods were used for manipulating the financial statements. These included all of the following except:a. Funneling losses into unaudited subsidiaries.b. Overstating inventory.c. Recognizing revenue that should have been deferred.d. ...
16 Aug 2021Many indicators of fraud are circumstantial; that is, they can be caused by non-fraud factors. This fact can make convicting someone of fraud difficult. Which of the following types of evidence would be most helpful in proving that someone committed fraud?a. Missing documentation...
16 Aug 2021Which of the following is least likely to be considered a financial reporting fraud symptom, or red flag?a. Gray directors.b. Family relationships between directors or officers.c. Large increases in accounts receivable with no increase in sales.d. Size of the firm
16 Aug 2021The three aspects of management that a fraud examiner needs to be aware of include all of the following except:a. Their backgrounds.b. Their motivations.c. Their religious convictions.d. Their influence in making decisions for the organization.
16 Aug 2021When looking for financial statement fraud, auditors should look for indicators of fraud by:a. Examining financial statements.b. Evaluating changes in financial statements.c. Examining relationships the company has with other parties.d. Examining operating characteristics of the ...
16 Aug 2021Which officer in a company is most likely to be the perpetrator of financial statement fraud?a. Chief financial officer (CFO).b. Controller.c. Chief operating officer (COO).d. Chief executive officer (CEO).
16 Aug 2021