FRAUD EXAMINATION ALBRECHT & ALBRECHT Revenue and Inventory Frauds Chapter 11 Management Fraud

What are the most common ways to commit revenue fraud? Management Fraud

Why are revenue frauds so common? How is it done? Management Fraud

Typical Revenue – Related Transaction Complete the Chart Typical Revenue – Related Transaction Management Fraud

What kind of changes should you look for? Management Fraud

What kind of changes should you look for? Management Fraud

What is the formula for measuring period to period changes? Management Fraud

What is an alternative to prior formula? Management Fraud

Match Ratio to Name Sales Returns Gross Profit Margin Total Sales Net Sales Sales Return % Net Sales A/R Sales Discount % A/R Turnover Net Sales A/R Turnover Sales Discounts Gross Sales # Days in A/R Management Fraud

Match Ratio to Explanation Allowance for Doubtful Accounts A measure of profitability 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 Management Fraud

Does ratio analysis or vertical analysis or horizontal analysis tell if fraud has been committed? Management Fraud

What are some other investigative procedures you could perform? Management Fraud

Comment on Behavior & Lifestyle Flags Management Fraud

Discuss TIPS Management Fraud

Explain How Inventory & Cost of Goods Sold Are Manipulated to Commit Fraud Management Fraud

Review Effect of Overstating Inventory on a Simplified Income Statement Management Fraud

Review Effect of Overstating Inventory & Understating purchases on Cost of Goods Sold Management Fraud

Complete Inventory Cycle Management Fraud

Identify Some Inventory Fraud Symptoms Management Fraud

Period-to-Period Changes Complete Chart Analysis of Period-to-Period Changes Inventory Account Balances With Industry Competitors Inventory Relationships With Real-World Numbers Management Fraud

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 Management Fraud

Sales returned by customer for refund A measure of profitability 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 Management Fraud