Read the following problems and respond according to the instructions at the end:
- 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 4 percent per year, while inventory has risen at a rate of 39 percent per year. Address the following:
- Could fraud be occurring? Why or why not?
- Assuming that fraud is being committed, how would you investigate?
- 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.
The statement of cash flows is one financial statement that is analyzed in order to identify possible fraud. This statement for Romana Inc. for a three-year period is shown below.
Address the following:
- Identify possible red flags.
- Indicate if reasonable explanations exist for the areas of concern.
- Identify the “next step” actions that you would take as part of the investigation.
Your paper must be in a Word document of three to four pages. If you wish to include calculations in support of your response, place them in the form of a table within your paper. Outside references are not required but may be included. Format your paper in accordance with APA requirements.
0 comments