9-28 (ORJECTIVES 9.5, 9-6) The following are various potential frauds in the sales and collec.

1. The company engaged in channel stuffing by shipping goods to customers that had

not been ordered.

N

The allowance for doubtful accounts was understated because the company altered

the aging of accounts receivable to reduce the number of days outstanding for delin.

quent receivables.

3. The accounts receivable clerk stole checks received in the mail and deposited them

in an account that he controlled. He issued credit memos to the customers in the

amount of the diverted cash receipts.

4. The company contacted a major customer and asked them to accept a major ship-

ment of goods before year end. The customer was told that they could return the

goods without penalty if they were unable to sell the goods.

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A cashier stole cash receipts that had been recorded in the cash register.

6. The company recorded "bill-and-hold sales" at year end. Although the invoices were

recorded as sales before year end, the goods were stored in the warehouse and shipped

atter year end.

7. The company did not record credit memos for returns received in the last month of

the year. The goods received were counted as part of the company's year-end physica

inventory procedures.

8. A cashier stole cash receipts by tailing to record the sales in the cash register.

9. The CFO recorded fictitious credit sales at the end of the year without recording the

associated cost of sales and reduction in inventory. a. Indicate Whether the fraud involves misappropriation of assets or fraudulent financial

reporting.

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b. For those frauds that involve misappropriation of assets, state a control that would be

eftective in preventing or detecting the misappropriation.

c. For those frauds that involve fraudulent financial reporting, state an audit procedure

that would be effective in detecting the fraud.