FRAUD EXAMINATION ALBRECHT, ALBRECHT,

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FRAUD EXAMINATION ALBRECHT, ALBRECHT, ALBRECHT

• Revenue- and Inventory-Related Financial
  Statement Frauds

Chapter 12
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Learning Objectives

1. Identify revenue-related financial statement
   fraud schemes.
2. Understand revenue-related financial statement
   fraud schemes.
3. Identify ways to proactively search for
   revenue-related financial statement fraud schemes.

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Learning Objectives

1. Understand the importance of, and ways to follow
   up on, revenue-related fraud symptoms.
2. Identify inventory and cost of goods sold
   financial statement fraud schemes.
3. Understand inventory and cost of goods sold
   financial statement fraud symptoms.

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Learning Objectives

1. Identify ways to search for inventory and cost of
   goods sold financial statement fraud schemes.

1. Understand the importance of, and ways to follow
   up on, inventory and cost of goods sold fraud
   symptoms.

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List Common Ways to Commit Revenue Fraud.
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Why Are Revenue Frauds so Common?

• How is it done?

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Complete the Chart
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Discuss What to Look For.
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What Kind of Changes Should You Look For?
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Discuss Revenue-Related Fraud Symptoms.
FRAUD
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Complete this Table
Analyzing Financial Balances and Relationships within Financial Statements
Comparing Financial Statement Accounts or Relationships with Nonfinancial Statement Information
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What is the Formula for Measuring Period to
Period Changes?
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What is an Alternative to the Prior Formula?

• Make the Balance Sheet Income Statement into
  Change Statements HOW?
• Circle the Preferred

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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
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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
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Do Ratio, Vertical or Horizontal Analysis Tell if
Fraud Has Been Committed?
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List Other Investigative Procedures You Could
Perform.
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Comment on Behavior Lifestyle Flags.
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Discuss TIPS.
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Explain How Inventory Cost of Goods Sold Are
Manipulated to Commit Fraud.
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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

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Review Effect of Overstating Inventory
Understating Purchases on Cost of Goods Sold.
Overstated Ending Inventory Understated Purchases

• Beginning Inventory
• Purchases
• -Returns to Vendor
• -Purchase Discounts on Inventory
• Goods Available for Sale
• -Ending Inventory
• Cost of Goods sold

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Complete Inventory Cycle.
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Identify Some Inventory Fraud Symptoms.
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Complete Chart.

• Inventory Account Balances

• With Industry Competitors

• Inventory Relationships

• With Real-World Numbers

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Discuss Inventory Fraud Symptoms.
FRAUD
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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
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Match Ratio to Name.
Sales returned by customer for refund
Earnings Per Share
Determining when revenues are earned can be
reported on the income statement
Revenue Recognition
Sales Returns
A measure of profitability