Q1. You are currently auditing Yin Ltd and you have finalised your review of the fraud risk factors. You have determined that all three elements of the fraud triangle are present and that fraudulent activities are taking place within the company. Analytical procedures performed by the auditors have highlighted some unusual findings which require further investigation.

For each independent scenario:

a) Provide an example of a fraudulent activity that may be taking place which would explain the findings of the analytical procedures;

b) Provide an explanation as to why staff or management may be engaging in this fraudulent activity;

c) Determine which type of fraud is present (i.e. fraudulent financial reporting or misappropriation of assets); and

d) Explain how this fraudulent activity could be prevented by management.

E. Analytical procedures have highlighted the following anomalies:

• Revenue appears to be overstated.

F. Analytical procedures have highlighted the following anomalies:

• Revenue appears to be understated.

G. Analytical procedures have highlighted the following anomalies:

• Inventory levels appear to be overstated.