Fraud Examination Chapter 12 Revenue and Inventory Related Financial Statement Frauds © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

To the Student This chapter focuses on revenue-and inventory-related financial statement frauds. Specifically, it focuses on identifying financial statement fraud exposures. While doing this, it is important to focus on transactions and accounts that are affected by and correspond with the potential frauds. This chapter also discusses fraud symptoms that may exist and how to actively search for these fraud symptoms. Finally, the chapter addresses ways to follow up on symptoms observed that pertain to both revenue-and inventory-related financial statement frauds. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives Identify revenue-related financial statement fraud schemes. List ways to search for revenue-related financial statement fraud. Understand the importance of, and ways to follow up on, revenue-related fraud symptoms. Discuss inventory-related financial statement fraud schemes. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives Identify ways to search for inventory-related financial statement fraud symptoms. Explain the importance of, and ways to follow up on, inventory-related fraud symptoms. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Revenue-Related Fraud Schemes Two reasons for the prevalence of revenue-related financial statement fraud: The availability of acceptable alternatives for recognizing revenue The ease of manipulating net income using revenue and receivable accounts © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Revenue-Related Fraud Schemes Common Revenue-related Fraud Schemes: Related-party transactions Sham sales Bill-and-hold sales Side agreements Consignment sales Channel stuffing Lapping or kiting © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Revenue-Related Fraud Schemes Common Revenue-related Fraud Schemes: Redating or refreshing transactions Liberal return policies Partial shipment schemes Improper cutoff Round-tripping All of these fraud schemes result in overstated revenues and overstated net income. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Identifying Revenue-Related Fraud Six Categories Analytical symptoms Accounting or documentary symptoms Lifestyle symptoms Control symptoms Behavioral and verbal symptoms Tips and complaints © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Inventory & Cost of Goods Sold Frauds © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Inventory & Cost of Goods Sold Frauds © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Analyzing Financial Statements © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.