Question

In: Finance

Law enforcement officer has been asked to start a money-laundering investigation of a company where the...

Law enforcement officer has been asked to start a money-laundering investigation of a company where the officer can only look at the most recent annual report of the company (balance sheet, income statement, statement of cash flows). The officer has no other information regarding the company.

A) The officer has asked for your instruction on how to analyze the annual report when investigating money-laundering.

B) Would it make any difference if the officer is given two annual reports of the company to compare, the most recent annual report, and also the annual report the year before?

Solutions

Expert Solution

) The officer has asked for your instruction on how to analyze the annual report when investigating money-laundering.

Ans-:Law officer investigate of Money laundering to verify Financial statement & detect fraudulent activities such as:
Increasing revenues in expected sales

Hiding liabilities from a company's balance sheet

Incorrectly showing transactions and finance calculation

growing revenues without cash flows growth

Consistent sales growth even peers are struggling.

Suddenly upward and downward in a company's performance within accounting period

Depreciation methods and estimates of assets' useful life that mismatch with same industry

financial statement fraud and unchecked.

The sudden replacement of an auditor which cause missing paperwork

A disproportionate amount of management about bonuses, fraud incentives

Financial Statement Fraud Detection Methods

While it's difficult to verify fraud in Vertical analysis every item in the income statement as a percentage of revenue and comparing the year-over-year trends, even in balance sheet

By analyzing ratios, information regarding day's sales in receivables, leverage multiples, and other inconsistencies.

the Beneish Model evaluates eight ratios to determine the likelihood of earnings manipulation, including asset quality, depreciation, gross margin, and leverage.

B) Would it make any difference if the officer is given two annual reports of the company to compare, the most recent annual report, and also the annual report the year before

Law officer compare previous years annual report it's definitely make difference
Comparing multiple years’ financial reports also helps to identify errors, omissions or intentional misreporting in financial statements. comparing ratios and percentages helps to identify inconsistencies not related to actual operating activity. Fluctuations in account balances so it's helps to requirement of investigation for further analysis to determine the root cause

multiple years of financial statements helps to make strategic decisions. If a company’s cash flows are waning and net income is falling


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