In: Finance
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?
) 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