ASSIGNMENT ON CHAPTER 12

A.During the financial audit of DIGIT.ALL, the Auditor gathered the following relevant financial data on company performance for the past three years.(20 points)

2016201720182019

SalesP220,500.00P446,250.00P803,250.00P1,204,875.00

Cost of Sales118,125.00196,875.00216,562.50386,564.06

Gross Margin----

After analyzing above data, the Auditor was convinced that there are fraud indicators.

Required:

A.1(a)Perform a horizontal analysis (4 points)

(b)Identify potential red flags on possible overstatement of sales. Support your answer with reason/justification why you consider this (these) as red flags (6 points)

A.2(a)Perform a vertical analysis (4 points)

(b)Identify potential red flags on possible understatement of cost of sales.

Support your answer with reason/justification why you consider this (these)

as red flags (6 points)

B.You are the newly hired Auditor of a large distributor company. One day you are called by the Chairman of the Audit Committee and was directed to analyze and interpret the situations as presented below. (10 points)

1.Two (2) delivery trucks full of inventory items were not allowed to be included in the actual count. As claimed by the warehouse supervisor, these are for delivery to the customers.

2. Accounts receivable without customers' subsidiary records.

3.Sales revenue growth shows an upward trend with minimal increase in cost of goods sold.

4.Significant discrepancies on physical count as compared with the inventory records.

5.Large percent of revenues booked in the fourth quarter of Year 1 and large percent of sales returns booked in the first quarter of Year 2.

In each of the situation above, analyze and evaluate, then decide whether it is or not a symptom of a revenue or inventory fraud.Explain your answer. (2 points each number)