What form or forms of financial statement fraud is this? Where would we expect to see the impact of this form of fraud in Sharefore Inc.’s financial statements?
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Accounting
In a description of a fraud scheme at Sharefore Inc., an analyst writes: “The next quarter, analyst expectations are higher, but sales have not picked up. The firm provides additional incentives to its sales force, uses overtime to boost shipments but now has additional expenses to contend with (incentives and overtime), so it does not fully accrue all its consulting expenses. Third quarter rolls around and sales still haven't improved enough, but the analysts keep increasing targets. Because this time, operating tactics are not sufficient, management pressures the CFO to meet analyst
What form or forms of financial statement fraud is this? Where would we expect to see the impact of this form of fraud in Sharefore Inc.’s financial statements?
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- QuickBank has decided to lower the interest rate it charges on business loans in order to attract more business. It has succeeded in boosting the number of loan applications, but it finds that many of the applicants turn out to be very poor credit risks. This illustrates the problem known as adverse selection moral hazard the principal-agent porblem diversificationJKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer has been added to its LIFO inventory in each of the years the method has been used. The company's inventory turnover ratio has averaged 4.5 in recent years. Management attempts to maintain a stable level of inventory at each store; the growth in inventory has been due to new stores being opened each year. In 20X1, the board of directors approved an incentive program that pays managers a sizable bonus in each year that certain performance targets are met. For 20X2, targeted earnings per share are $3.35. In an effort to track progress toward meeting this target, management produced the following income statement for the first nine months of 20X2. JKW Corporation Income Statement January 1-September 30, 20X2 Sales $13,284,000 Cost of goods sold Gross margin Operating expenses…4. Cost of Goods Sold is increasing at rate that does not match sales or gross profit. While sales and gross profit seem to be trending down, the Cost of Goods Sold. Specifically, we see a drop in sales and gross profit in 2021, yet the cost of goods sold increased. What type of documentation and information should the auditors request to further evaluate for potential fraud? What might explain this inconsistency?
- Strivant Industries is a struggling company whose profits are dropping. Manager Jill Trainor is looking at the numbers on the annual report she is preparing to send out to investors. She takes a red pencil and strikes through several numbers, replacing them with figures that make Strivant seem more profitable than it really is. This is an example of Multiple Choice editing. auditing. embezzling. fraud.Most analysts believe which of the following is true about EPS? A. Consistent improvement in EPS year after year is the indication of continuous improvement in the companys earning power. B. Consistent improvement in EPS year after year is the indication of continuous decline in the companys earning power. C. Consistent improvement in EPS year after year is the indication of fraud within the company. D. Consistent improvement in EPS year after year is the indication that the company will never suffer a year of net loss rather than net income.f In addition to the risk factor identified in the preceding question, another risk factor relating to misstatements arising from fraudulent financial reporting is: Multiple Choice Earnings this year are lower than management had hoped. Accounts payable are limited to commercial suppliers. Sales are made to residential, commercial, and governmental purchasers. The industry faces great technological changes in almost all of its products. Untitled docume...pdf Untitled docume....pdf docx Presentation se...pdf Untitled docume...pdf MacBook Air
- While spotting red flags is difficult, vertical and horizontal financial statement analysis introduces a straightforward approach to fraud detection. Evaluate Company A’s Five Year Financial Data, please see the attached. (a) Perform horizontal analysis of the above data to indicate any potential red flags regarding possible overstatement of sales. (b) Perform vertical analysis of the above data to indicate any potential red flags regarding possible overstatement of the COGS.By ordering unnecessary products at inflated prices, the purchasing manager of XYZ Company defrauded his employer of more than $400,000 over a two-year period, a significant amount for this business. Which of the following data analysis procedures could have been used to detect this fraud? O Sort purchases by vendor and purchase volume O Search for employees with the same address or telephone numbers as vendors O All of these procedures could have been used to detect this fraud O Chart price increases and purchase volumes of different products over timePfizer Pharmaceuticals, Inc. is facing difficulties due to longer average collection period as many of its customers are having liquidity issues and they are delaying payments well beyond the due dates. Furthermore, the bad debt ratio of the company is on the rise as lots of pharmaceutical companies have gone bankrupt or having financial difficulties. In order to address these issues, company is thinking to adopt stringent credit policy in order to reduce bad debt and average collection period. The Management has decided that it will not grant additional credit to any customer beyond 15 days past due on payments. However, such a change of policy has consequences, and it is expected that firm will reduce it current sales to $6.5 million (20% reduction from current level of sale). However, the policy will also help in reduction of bad debts losses by 4% (from 8% to 4%) and average collection period by 35 days (from 110 days to 75 days). The expected decrease in sales will result in…
- Glencoe First National Bank operated for years under the assumption that profitability can be increased by increasing dollar volumes. Historically, First Nationals efforts were directed toward increasing total dollars of sales and total dollars of account balances. In recent years, however, First Nationals profits have been eroding. Increased competition, particularly from savings and loan institutions, was the cause of the difficulties. As key managers discussed the banks problems, it became apparent that they had no idea what their products were costing. Upon reflection, they realized that they had often made decisions to offer a new product which promised to increase dollar balances without any consideration of what it cost to provide the service. After some discussion, the bank decided to hire a consultant to compute the costs of three products: checking accounts, personal loans, and the gold VISA. The consultant identified the following activities, costs, and activity drivers (annual data): The following annual information on the three products was also made available: In light of the new cost information, Larry Roberts, the bank president, wanted to know whether a decision made two years ago to modify the banks checking account product was sound. At that time, the service charge was eliminated on accounts with an average annual balance greater than 1,000. Based on increases in the total dollars in checking, Larry was pleased with the new product. The checking account product is described as follows: (1) checking account balances greater than 500 earn interest of 2 percent per year, and (2) a service charge of 5 per month is charged for balances less than 1,000. The bank earns 4 percent on checking account deposits. Fifty percent of the accounts are less than 500 and have an average balance of 400 per account. Ten percent of the accounts are between 500 and 1,000 and average 750 per account. Twenty-five percent of the accounts are between 1,000 and 2,767; the average balance is 2,000. The remaining accounts carry a balance greater than 2,767. The average balance for these accounts is 5,000. Research indicates that the 2,000 category was by far the greatest contributor to the increase in dollar volume when the checking account product was modified two years ago. Required: 1. Calculate rates for each activity. 2. Using the rates computed in Requirement 1, calculate the cost of each product. 3. Evaluate the checking account product. Are all accounts profitable? Compute the average annual profitability per account for the four categories of accounts described in the problem. What recommendations would you make to increase the profitability of the checking account product? (Break-even analysis for the unprofitable categories may be helpful.)Recently the M&M Company has been having problems. As a result, its financial situation has deteriorated. M&M approached the First National Bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run? * a. Using some cash to pay off some current liabilities b. Collecting some of the current accounts receivable. c. Paying off some long-term debt. d. Purchasing additional inventory on credit (accounts payable)The auditor worked for this client for years. But before accepting or continuing with the client, What are the reasons the auditor or audit firm should or should not retain this existing client this time around using the information below about the client? What risks could the client, its business, and its environment pose to the auditor or audit firm? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a…