ACP AUDITING - RISK BASED APPROACH
10th Edition
ISBN: 9780357195079
Author: JOHNSTONE
Publisher: CENGAGE C
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 6, Problem 73FF
MINISCRIBE
(LO 1, 2)
As reported in the Wall Street Journal (September 11, 1989), MiniScribe, nc., inflated its reported profits and inventory through a number of schemes designed to fool the auditors. At that time, MiniScribe was one of the major producers of disk drives for personal computers. The newspaper article reported that MiniScribe used the following techniques to meet its profit objectives:
• An extra shipment of $9 million of disks was sent to a customer near year-end and booked as a sale. The customer had not ordered the goods and ultimately returned them, but the sale was nor reversed in the year recorded.
• Shipments were made from a factory in Singapore, usually by air freight. Toward the end of the year, some of the goods were shipped by cargo ships. The purchase orders were changed to show that the customer took title when the goods were loaded on the ship. However, title did not pass to the customer until the goods were received in the U.S.
• Returned goods were recorded as usable inventory. Some were shipped without any repair work performed.
• MiniScribe developed a number of just—in—time warehouses and shipped goods to them from where they were delivered to customers. The shipments were billed as sales as soon as they reached the warehouse.
For each of the techniques described, identify the audit evidence that might have enabled the auditor to uncover the fraud.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
By ordering unnecessary products at inflated prices, the purchasing manager of XYZ Company
defrauded his employer of more than $400,000 over a two-year period, a significant amount for this
business.
Which of the following data analysis procedures could have been used to detect this fraud?
O Sort purchases by vendor and purchase volume
O Search for employees with the same address or telephone numbers as vendors
O All of these procedures could have been used to detect this fraud
O Chart price increases and purchase volumes of different products over time
The following paragraphs describe fraudulent accounting committed by the company Gateway. After reading the paragraphs, list the journal entries you think would have used to do what is described here. You will have to make an educated guess as to what journal entries the company would use to cover up the fraud.
On September 21, 2000, Gateway's sales representative sent an e-mail to the consumer leasing company confirming that the consumer leasing company would issue a purchase order for $16.5 million of PCs, for which it would receive a 5% discount, that the consumer leasing company would be billed by September 30, 2000 and would take the PCs by October 31, 2000.
The following paragraphs describe fraudulent accounting committed by the company Rite-Aid in 1999. After reading the paragraphs, list the journal entries you think Rite-Aid would have used to do what is described here. You will have to make an educated guess as to what journal entries the company would use to cover up the fraud. In the fourth quarter of FY 1999, Rite Aid prematurely recognized $17 million relating to a litigation settlement with a vendor. Rite Aid should not have recognized this sum in that period because the settlement offer was expressly contingent upon the execution of a formal settlement agreement which did not take place until May 20, 1999. Moreover, the litigation settlement was also contingent upon the execution of a purchasing agreement that was not finalized until May 18, 1999. Both of these contingencies were expressly stated in the February 26, 1999 letter of intent signed by Grass.
Chapter 6 Solutions
ACP AUDITING - RISK BASED APPROACH
Ch. 6 - Prob. 1TFQCh. 6 - Prob. 2TFQCh. 6 - Prob. 3TFQCh. 6 - Prob. 4TFQCh. 6 - Prob. 5TFQCh. 6 - Prob. 6TFQCh. 6 - Prob. 7TFQCh. 6 - Prob. 8TFQCh. 6 - Prob. 9TFQCh. 6 - Prob. 10TFQ
Ch. 6 - Prob. 11TFQCh. 6 - Prob. 12TFQCh. 6 - Prob. 13TFQCh. 6 - Prob. 14TFQCh. 6 - Prob. 15TFQCh. 6 - Prob. 16TFQCh. 6 - Prob. 17TFQCh. 6 - Prob. 18TFQCh. 6 - Prob. 19TFQCh. 6 - Prob. 20TFQCh. 6 - Prob. 21MCQCh. 6 - Prob. 22MCQCh. 6 - Prob. 23MCQCh. 6 - Prob. 24MCQCh. 6 - Prob. 25MCQCh. 6 - Prob. 26MCQCh. 6 - Prob. 27MCQCh. 6 - Prob. 28MCQCh. 6 - Prob. 29MCQCh. 6 - Prob. 30MCQCh. 6 - Prob. 31MCQCh. 6 - Prob. 32MCQCh. 6 - Prob. 33MCQCh. 6 - Prob. 34MCQCh. 6 - Prob. 35MCQCh. 6 - Prob. 36MCQCh. 6 - Prob. 37MCQCh. 6 - Prob. 38MCQCh. 6 - Prob. 39MCQCh. 6 - Prob. 40MCQCh. 6 - Prob. 41RSCQCh. 6 - Prob. 42RSCQCh. 6 - Prob. 43RSCQCh. 6 - Prob. 44RSCQCh. 6 - Refer to Exhibit 6.2 and describe the differences...Ch. 6 - Prob. 46RSCQCh. 6 - Prob. 48RSCQCh. 6 - Prob. 49RSCQCh. 6 - Prob. 50RSCQCh. 6 - Prob. 51RSCQCh. 6 - Prob. 52RSCQCh. 6 - Prob. 53RSCQCh. 6 - Indicate how the auditor could use substantive...Ch. 6 - Prob. 55RSCQCh. 6 - Prob. 56RSCQCh. 6 - Prob. 57RSCQCh. 6 - Prob. 58RSCQCh. 6 - Prob. 59RSCQCh. 6 - Prob. 60RSCQCh. 6 - Prob. 61RSCQCh. 6 - Prob. 62RSCQCh. 6 - Prob. 63RSCQCh. 6 - Prob. 64RSCQCh. 6 - Prob. 65RSCQCh. 6 - Prob. 66RSCQCh. 6 - Prob. 67RSCQCh. 6 - Prob. 68RSCQCh. 6 - Prob. 69FFCh. 6 - Prob. 70FFCh. 6 - Prob. 71FFCh. 6 - Prob. 72FFCh. 6 - MINISCRIBE (LO 1, 2) As reported in the Wall...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Accounting In a description of a fraud scheme at Sharefore Inc., an analyst writes: “The next quarter, analyst expectations are higher, but sales have not picked up. The firm provides additional incentives to its sales force, uses overtime to boost shipments but now has additional expenses to contend with (incentives and overtime), so it does not fully accrue all its consulting expenses. Third quarter rolls around and sales still haven't improved enough, but the analysts keep increasing targets. Because this time, operating tactics are not sufficient, management pressures the CFO to meet analyst forecast numbers. The CFO becomes aggressive in the interpretation of installment sales and expense accruals. As expectations keep rising, so does the firm's stock price.” What form or forms of financial statement fraud is this? Where would we expect to see the impact of this form of fraud in Sharefore Inc.’s financial statements?arrow_forwardA corporation has an excess input VAT due to its excessive local purchases of goods and services. This excess input VAT is accumulating every month and reached a significant value. The management is considering to deal with the excess input VAT. Assume that the excess input VAT is directly attributable to its Zero-rated VAT Sales, explain the options that could possibly be considered by the management.arrow_forwardThe birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com, and PCM, Inc. Many of these companies often act as intermediaries between the manufacturer and the customer without ever taking possession of the merchandise sold. Revenue recognition for this type of transaction has been controversial. Assume that Overstock.com sold you a product for $200 that cost $150. The company's profit on the transaction clearly is $50. Should Overstock recognize $200 in revenue and $150 in cost of goods sold (the gross method), or should it recognize only the $50 in gross profit (the net method) as commission revenue? 4. Do you agree with Alphabet's reasoning with respect to choosing whether it reports revenue gross versus net with respect to these advertising services? Indicate "yes" or "no," and explain.arrow_forward
- David H. Brooks, a university graduate with an accounting degree and the former CEO of DHBIndustries, Inc., was charged in October 2007 with accounting and securities fraud for failing toreport the company’s inventory at the lower of cost or market. From 2001 to 2005, DHB purchasedlarge quantities of a material called Zylon and used it in making bulletproof vests that were sold tothe U.S. military and local law enforcement agencies. During this same period, DHB learned thatZylon deteriorated rapidly when exposed to light, heat, and body perspiration. DHB knew that oneof its competitors, Second Chance Body Armor, had stopped using Zylon in its vests and, eventually, discontinued its business because customer demand for its Zylon-based vests had evaporated.DHB did not write down its own inventory of Zylon and Zylon-based vests because it had a largecontract to supply the U.S. military with bulletproof vests. In its financial statements for the yearended December 31, 2004, DHB reported…arrow_forwardA client operates two plants. In Plant A, throughout the entire cutoff test window, all sales have been recorded as FOB shipping point. In Plant B, all sales have been recorded as FOB shipping point in the cutoff window prior to year-end and either FOB shipping point or FOB destination in the cutoff window subsequent to year end. Which plant would an auditor judge to have higher fraud risk? Question 27 options: Plant A would have higher fraudulent financial reporting risk than Plant B. Plant B would have higher risk of the misappropriation of assets than Plant A. Plant A would have higher risk of the misappropriation of assets than Plant B. Plant B would have higher fraudulent financial reporting risk than Plant A.arrow_forwardOne of the largest losses in history from unauthorized securities trading involved a securities trader for the French bank Societe Generale. The trader was able to circumvent internal controls and create more than $7 billion in trading losses in six months. The trader apparently escaped detection by using knowledge of the bank’s internal control systemslearned from a previous back-office monitoring job. Much of this monitoring involved the use of software to monitor trades. In addition, traders were usually kept to tight trading limits. Apparently, these controls failed in this case.What general weaknesses in Societe Generale’s internal controls contributed to the occurrence and size of the losses?arrow_forward
- Jane Ellerby and Sam Callison are discussing the recent fraud that occurred at LowRental Leasing, Inc. The fraud involved the improper reporting of revenue to ensure that the company would have income in excess of $1 million. What is fraudulent financial reporting, and how does it differ from an embezzlement of company funds?arrow_forwardIn a financial fraud case, city employees in Brooklyn, New York, accessed digital databases to defraud the city of $20 million. Several employees, in collusion with the former deputy tax collector, completely erased or reduced $13 million in property taxes and $7 million in accrued interest that taxpayers owed. In exchange for this service, the taxpayers paid the employees involved bribes of 10 to 30 percent of their bills. Required Discuss the control techniques that could prevent or detect this fraud.arrow_forwardIn May 2001, the Securities and Exchange Commission sued the former top executives at Sunbeam, chargingthe group with financial reporting fraud that allegedly cost investors billions in losses. Sunbeam Corporationis a recognized designer, manufacturer, and marketer of household and leisure products, including Coleman,Eastpak, First Alert, Grillmaster, Mixmaster, Mr. Coffee, Oster, Powermate, and Campingaz. In the mid-1990s,Sunbeam needed help: its profits had declined by over 80% percent, and in 1996, its stock price was down over50% from its high. To the rescue: Albert Dunlap, also known as “Chainsaw Al” based on his reputation as aruthless executive known for his ability to restructure and turn around troubled companies, largely by eliminating jobs.The strategy appeared to work. In 1997, Sunbeam’s revenues had risen by 18 percent. However, in April 1998,the brokerage firm of Paine Webber downgraded Sunbeam’s stock recommendation. Why the downgrade? PaineWebber had noticed unusually…arrow_forward
- United Systems is one of the country’s largest distributors of servers and video-conferencing technology. Recently, the company successfully expanded into three new markets. The company’s CFO needs to perform a post-audit to examine the feasibility of expansion into more new markets. Which of the following would be part of the post-audit? Check all that apply. Explaining why the company spent three times more on shipping products than what was forecast Comparing the company’s actual sales volume in the new markets to the company’s expected sales volume in the new markets Determining which markets the company should expand into next When a firm is forced to employ capital rationing, it generally means that the firm has positive NPV projects than it can finance.arrow_forwardWhile spotting red flags is difficult, vertical and horizontal financial statement analysis introduces a straightforward approach to fraud detection. Evaluate Company A’s Five Year Financial Data, please see the attached. (a) Perform horizontal analysis of the above data to indicate any potential red flags regarding possible overstatement of sales. (b) Perform vertical analysis of the above data to indicate any potential red flags regarding possible overstatement of the COGS.arrow_forward18.During an audit of a retail company, Lily, newly hired internal auditor, found a scheme in which the warehouse manager and a purchasing staff diverted approximately Php2 million worth of goods to an outside warehouse, the sold the goods to third parties. The fraud was not found earlier by the internal audit team since the warehouse manager updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures did Lily perform which would have most likely led to the discovery of the missing materials and the fraud? Group of answer choices Random sampling of receiving reports and tracing to the recording in the perpetual inventory records. Selecting a random sample of purchase orders and trace to receiving reports and to the records in the accounts payable department. Performance of physical inventory count, then reconciliation of the amounts with the perpetual inventory records. Random…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Computer Fraud; Author: Mitch Wenger (Accounting Systems & Tech);https://www.youtube.com/watch?v=-s82SCuMaTI;License: Standard Youtube License