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FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT. Revenue- and Inventory-Related Financial Statement Frauds. Chapter 12. Learning Objectives. Identify revenue-related financial statement fraud schemes. Understand revenue-related financial statement fraud schemes.
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FRAUD EXAMINATIONALBRECHT, ALBRECHT, & ALBRECHT Revenue- and Inventory-Related Financial Statement Frauds Chapter 12
Learning Objectives • Identify revenue-related financial statement fraud schemes. • Understand revenue-related financial statement fraud schemes. • Identify ways to proactively search for revenue-related financial statement fraud schemes.
Learning Objectives • Understand the importance of, and ways to follow up on, revenue-related fraud symptoms. • Identify inventory and cost of goods sold financial statement fraud schemes. • Understand inventory and cost of goods sold financial statement fraud symptoms.
Learning Objectives • Identify ways to search for inventory and cost of goods sold financial statement fraud schemes. Understand the importance of, and ways to follow up on, inventory and cost of goods sold fraud symptoms.
Why Are Revenue Frauds so Common? How is it done?
Typical Revenue – Related Transactions Complete the Chart
What is an Alternative to the Prior Formula? Make the Balance Sheet & Income Statement into Change StatementsHOW? Circle the Preferred
Match Ratio to Name. Gross Profit Margin Sales Returns Total Sales Gross Profit Net Sales Sales Return % Net Sales A/R Sales Discount % A/R Turnover 365 A/R Turnover Number of Days in A/R Sales Discounts Gross Sales
Match Ratio to Explanation. A measure of profitability Allowance for Uncollectible Accounts Estimated uncollectible A/R, a contra-asset, Bad Debt Expense Common Size Financial Statements Financial statements converted to % Expense for revenues or receivable presumed uncollectible Earnings per Share
Do Ratio, Vertical or Horizontal Analysis Tell if Fraud Has Been Committed?
Explain How Inventory & Cost of Goods Sold Are Manipulated to Commit Fraud.
Review Effect of Overstating Inventory on a Simplified Income Statement. Gross Revenues (Sales) -Sales Returns -Sales Discounts Net Revenues (Sales) -Cost of Goods Sold Gross Margin -Expenses Net Income
Review Effect of Overstating Inventory & Understating Purchases on Cost of Goods Sold. Beginning Inventory +Purchases -Returns to Vendor -Purchase Discounts on Inventory Goods Available for Sale -Ending Inventory Cost of Goods sold
Analysis of Period-to-Period Changes Analysis of Period-to-Period Changes Complete Chart. • Inventory Account Balances • With Industry Competitors • Inventory Relationships • With Real-World Numbers
Match Ratio to Name. Financial statements converted to % Allowance for Doubtful Accounts The expense of goods sold to customers Bad Debt Expense A contra receivable, estimated uncollectible A/R Cost of Goods Sold Common-Size Financial Statements Expensing estimated uncollectible A/R or revenues
Match Ratio to Name. Earnings Per Share Sales returned by customer for refund Determining when revenues are earned & can be reported on the income statement Revenue Recognition Sales Returns A measure of profitability