Q2. Investigating Financial Statement fraud You are recently hired as an investigative analyst at Krystalclear Research Pty Ltd. The company conducts due diligence research on published accounts of public listed companies that focus on uncovering opaque accounting practices that might expose financial statement fraud. Your immediate supervisor hands you a 3-year extract of the financial records of electricity retailer, NewX Ltd, a company listed on the local stock exchange. NewX shares have been rising as management of NewX continues to deliver what appears to be strong results year after year. In 2021, NewX reports a revenue of $9.3m representing a 3-year compounded growth rate of 27% from the $4.5m reported for 2019. Your supervisor finds this growth rate astounding and has her doubts as she knows the electricity retail market is competitive and that revenue growth generally tracks the rate of inflation. She also notes the announcement to the stock exchange by NewX of the sudden departure of its chief financial officer. The extract provided to you consists of the following Balance Sheet and Profit & Loss items: 2019 $ 2020 $ 2021 $ NewX Limited Balance Sheet items Current Assets Cash Accounts Receivable Prepaid Expenses Inventory Non-Current Assets Motor Vehicles (net) Equipment (net) Buildings 900,000 150,600 20,900 50,000 850,000 160,700 30,000 49,000 890,000 250,000 31,000 48,700 350,000 900,000 2,590,000 340,000 905,000 2,590,000 390,000 950,000 2,590,000 Current Liabilities Accounts Payable Accrued Expenses Loan Payable - short term Non-Current Liabilities Loan 450,500 80,000 60,000 500,000 81,000 55,000 435,500 60,000 30,000 350,000 320,000 400,000 Profit Statement items Revenue Gross Profit Gross Profit Margin 4,500,790 2,500,000 55.5% 6,900,700 2,250,000 32.6% 9,300,000 2,100,000 22.6% Required: 1. Perform horizontal on the extract and identify five accounts that you consider to be particularly questionable. Show all workings (you may work in Excel and copy the results into your solution document). 2. For each of the five accounts you identified in part 'a', explain with discussion what different fraud schemes could be happening that would explain the result. (10 + 10 = 20 Marks]