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Inventory Fraud Schemes Explained

This document discusses revenue-related and inventory-related financial statement fraud. It covers common fraud schemes such as sham sales, channel stuffing, and double counting inventory. The document also identifies ways to search for symptoms of fraud, including analytical, accounting, lifestyle, control, behavioral, and tips. Finally, it explains how overstating inventory affects the income statement by understating cost of goods sold and overstating gross margin and net income.

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571 views10 pages

Inventory Fraud Schemes Explained

This document discusses revenue-related and inventory-related financial statement fraud. It covers common fraud schemes such as sham sales, channel stuffing, and double counting inventory. The document also identifies ways to search for symptoms of fraud, including analytical, accounting, lifestyle, control, behavioral, and tips. Finally, it explains how overstating inventory affects the income statement by understating cost of goods sold and overstating gross margin and net income.

Uploaded by

noviapurnama27
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Fraud Examination, 3E

Chapter 12: Revenue- and


Inventory-Related Financial
Statement Frauds

Learning Objectives
Identify revenue-related financial
statement fraud schemes
List ways to proactively search for
revenue-related financial
statement fraud symptoms.
Understand the importance of, and
ways to follow up on, revenuerelated fraud symptoms.
Discuss inventory-related financial
statement fraud schemes.
2

Learning Objectives
Identify ways to search for
inventory-related financial
statement fraud symptoms.
Explain the importance of, and
ways to follow up on, inventoryrelated fraud symptoms.

Revenue-Related Fraud
Schemes

Two reasons for the prevalence of


revenue-related financial
statement fraud:
[Link] availability of acceptable
alternatives for recognizing
revenue
[Link] ease of manipulating net
income using revenue and
receivable accounts

Revenue-Related Fraud
Schemes

Common Revenue-related Fraud


Schemes:
Related-party transactions
Sham sales
Bill-and-hold sales
Side agreements
Consignment sales
Channel stuffing
Lapping or kiting

Revenue-Related Fraud
Schemes

Common Revenue-related Fraud


Schemes:
Redating or refreshing
transactions
Liberal return policies
Partial shipment schemes
Improper cutof
Round-tripping

Identifying Revenue-Related
Fraud

Six Categories
[Link] symptoms
[Link] or documentary
symptoms
[Link] symptoms
[Link] symptoms
[Link] and verbal symptoms
[Link] and complaints

Inventory & Cost of Goods Sold


Frauds
The Effects of Inventory
Overstatement on the Income
Statement
Income Statement
When inventory is overstated, then
Gross Revenue (Sales)

Are not afected

Sales Returns

Are not afected

Sales Discounts

Are not afected

Net Revenues (Sales)

Are not afected

Cost of Goods Sold


Gross Margin
Expenses
Net Income
8

Is understated
Is overstated
Are not afected
Is overstated

Inventory & Cost of Goods Sold


Frauds
Most common inventory-related
fraud schemes:
Double counting
Capitalizing
Cutof problems
Overestimating inventory
Bill-and-hold sales
Consigned inventory

Analyzing Financial Statements


Financial Statement Analysis for RevenueRelated Fraud

Financial Statement Analysis for InventoryRelated Fraud

10

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