Auditing - Fraud through Misappropriation of Assets or Fraudulent financial reporting State one type of fraud...

Auditing - Fraud through Misappropriation of Assets or Fraudulent financial reporting

State one type of fraud that can occur for the accuracy objective of provision for warranty (liability account)

State one type of fraud that can occur for the sales occurrence objective of sales revenue (revenue account)

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Expert Solution

1.The provision for warranty fraud can occur when there are fictitious customers and the warranty for the sales incurred is booked. In this case, a sale under a third party name is booked with a duplicate invoice and a provision is created against the same by the employee propagating a fraud. This will increase the provisions for warranty and a fake warranty claim is booked against the sale with the benefits of the warranty being transferred to the fraudster.

2. The sales revenue fraud can occur in the form of booking of potential revenue without the actual criterions of revenue recognition standards being met. The revenues are inflated often by the management in order to have a better image of the financial statements. This is usually done by recognizing the revenue in full when the contract is spread over a couple of years. Ideally the revenue must be amortized over the length of the contract but in case of fraudulent financial reporting the revenue is recognized upfront.

ekkarill92 answered 1 year ago

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