Question1-When performing a horizontal trend analysis of two companies, an auditor notices the following ratios:

Gross profit percentage Company A yr 1= 30.2%, yr 2 = 30.9% yr 3 = 30.1%

Company B yr 1 = 32.5%, yr 2 = 29.2%, yr 3= 32.0%

The industry average for these years was 29.4%.

Which company displays more of a red flag for fraud than the other? Explain, and can you name the type of management fraud we auditors call this type of financial statement fraud?

Question 2

A nonprofit organization is having its annual board meeting and they are reviewing their audited financial statement. One of the board mentions that he is concerned about adhering to the rules of Sarbanes - Oxley, and specifically the rules for officers signing that they are responsible for the financial statements and that there should be adequate internal control. Another board member says that none of the SOX rules applies to nonprofit organizations. Who is right and fully explain in your answer.