The CFO,Brad Taylor,of Florida Electronics Merchandising Company Has Asked You

The CFO,Brad Taylor,of Florida Electronics Merchandising Company has asked you to advise it on how to detect fraudulent financial reporting.Brad suspects that the management of one of its outlet stores may have been committing fraud by overstating ending inventory by $100,000 per quarter and wants your help in detecting this.In particular,Brad wants to know how to find evidence of inventory overstatement,whether intentional or unintentional.
Required:
a.Brad as CFO has provided the following data (in thousands)for quarter 1 and projected figures for quarter 2 for the year.If fraud is occurring,he believes it is at its early stages and that the beginning inventory for Quarter 1 was more than likely correct.
Brad would like you to put together an illustration that he can take to the audit committee that shows the potential effect of the inventory overstatement fraud,how it compares to a situation with no fraud,and how the fraudulent scheme may carry through to the reported amounts for beginning inventory and operating profits in Quarter 2.

b.Prepare a brief report for Brad,that suggests ways he and his team could detect the inventory overstatement.

Correct Answer:

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a.Illustration of the Effects of Oversta...

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