Week 8 - fraud

Question 1

what is fraud

Answer 1

Its the process of deceiving someone in order to gain an unlawful unfair advantage

Question 2

what are the 2 schemes in which a company can commit fraud

Answer 2

Revenue related schemes
inventory related schemes

Question 3

What are some revenue related schemes that firms can do to commit fraud

Answer 3

Chanell stuffing- encouraging customers to buy extra inventory to increase current year sales through guaranteed return and refund

• Bill and hold sales- bills the customer but holds inventory and doesn’t deliver goods yet
• Consignment sales - trading agreement where a seller sends goods to a reseller and the reseller pays the seller once the goods have been sold- improperly recording such sales can overstate revenues
• round tipping - sell unused assets with a promise to buy back later- not genuine sales - fraud
• repurchase agreements- e.g subprime mortgages

Question 4

what are some inventory related fraud firms may exhaust

Answer 4

Double counting - overstating inventory, decreasing profits

• Capitalising - e.g adding selling expenses to inventory or capitalising operating expenses as part of any assets
• consigned inventory - incorrectly counting