As CEO of your company, you've been going over your financial statements and have noticed something disturbing. You perform a horizontal analysis and find that sales have been increasing at a rate of 3 percent per year, while inventory has risen at a rate of 29 percent per year. Because the gap between sales growth and growth of inventory is so large, the CEO should assume fraud has occurred and proceed accordingly.

1. Could fraud be occurring? Why or why not?2. Assuming that fraud is being committed, how would you investigate?

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27 December, 19:46

As CEO of your company, you've been going over your financial statements and have noticed something disturbing. You perform a horizontal analysis and find that sales have been increasing at a rate of 3 percent per year, while inventory has risen at a rate of 29 percent per year. Because the gap between sales growth and growth of inventory is so large, the CEO should assume fraud has occurred and proceed accordingly.

1. Could fraud be occurring? Why or why not?2. Assuming that fraud is being committed, how would you investigate?

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Emmanuel Rowe · Answer 1

Forensic Accounting Mod 5 - Option #1 - Fraud Detection Using Trend Analysis and Financial Statement Analysis

Explanation:

Large-scale fraud can often be detected by performing financial statement analysis. Although such analysis can raise areas of concern, not all red flags are the result of fraudulent activities. Reasonable explanations often exist for anomalies in financial statements.