Question

Please no handwritten answers.

Are there any red flags in financial statement analysis? Can technology be used to prevent fraud? Explain.

Answer 1

Following are red flags that can indicate trouble for business.

1. Decrease in gross profit margin is cause for alarm. The profit margin must account to cover operating expenses, such as costs of debt and other operating expenses.
2. Some organizations experience a steady stream of assets and liabilities. If a company is consistently getting more liabilities without a proper increase in assets, it might be a sign it is over-leveraged.
3. The more shares that are available for purchase in the stock market, the more diluted shareholders equity in the company becomes.
4. If the company is having, unsteady cash flow it might be an indication, Cash flow is a good sign of a healthy organization.
5. If a company has three or more years of declining revenues, it is probably not a good investment.
6. Company is rising debt-to-equity ratio , This indicates that the company is absorbing more debt than it can handle.

Technology to prevent fraud

1. Accountant can use a Microsoft excel to identify the suspicious transitions occurred on Non-working days by creating the formula.
2. Common way to occur fraud is through billing schemes such as duplicate payments. Identifying duplicate payments and investigating into them further will help an organization to prevent fraudulent activity. Microsoft access can be used to identify multiple transactions in the billing.