ESB. ACCOUNTING CONNECTION )► Careful scrutiny of accounting records and financial statements can lead to the discovery of fraud or embezzlement. Each of the situations that follow may indicate a breakdown in internal control. Indicate the nature of the pos- sible fraud or embezzlement in each of these situations. 1. Wages expense for a branch office was 30 percent higher in 2014 than in 2013, even though the office was authorized to employ only the same four employees and raises were only 5 percent in 2014. 2. Sales returns and allowances increased from 5 percent to 20 percent of sales in the first two months of 2014, after record sales in 2013 resulted in large bonuses for the sales staff. 3. Gross margin decreased from 40 percent of net sales in 2013 to 20 percent in 2014, even though there was no change in pricing. Ending inventory was 50 percent less at the end of 2014 than it was at the beginning of the year. There is no immediate explanation for the decrease in inventory.

ESB. ACCOUNTING CONNECTION )► Careful scrutiny of accounting records and financial statements can lead to the discovery of fraud or embezzlement. Each of the situations that follow may indicate a breakdown in internal control. Indicate the nature of the pos- sible fraud or embezzlement in each of these situations. 1. Wages expense for a branch office was 30 percent higher in 2014 than in 2013, even though the office was authorized to employ only the same four employees and raises were only 5 percent in 2014. 2. Sales returns and allowances increased from 5 percent to 20 percent of sales in the first two months of 2014, after record sales in 2013 resulted in large bonuses for the sales staff. 3. Gross margin decreased from 40 percent of net sales in 2013 to 20 percent in 2014, even though there was no change in pricing. Ending inventory was 50 percent less at the end of 2014 than it was at the beginning of the year. There is no immediate explanation for the decrease in inventory.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

Section: Chapter Questions

Problem 40RQSC: Read the following scenario about Strang Corporation and identify the substantive procedures that...

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Pls explain first how you solve it. Thank you. F COMPANY, organized on March 1, 2021, has a very poor internal control system. Thecompany's cashier is also its accountant. After 9 months of operations, the company's managersuspects that the cashier-accountant has been misappropriating company collections. You havebeen engaged to audit the company's accounts to determine the extent of fraud, if any. You started the audit on November 15. On that date, the cash on hand per your surprise countwas P5,140. Also on that date, the bank confirmed that the balance of the company's currentaccount was P26,328. Your examination of the records reveals that a check for P1,852 wasoutstanding on November 15. The company's markup is 40% of sales. Further examination of the company's records reveals the following balances at November 15,2021:
Subject: Accounting Information System ETHICS, FRAUD, AND INTERNAL CONTROL Stated Problem: EXPENSE ACCOUNT FRAUD While auditing the financial statements of Petty Cor-poration, the certified public accounting firm of TrueBlue and Smith discovered that its client’s legal expenses account was abnormally high. Further investigation of the records indicated the following:•Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.•Swindle, Fox, and Kreip were not Petty Corporation's attorneys. A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk. Boghas’s other duties included performing the end-of-month bank reconciliation. Subsequent investigation revealed that Swindle,Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.…
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