1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.