Subject: Forensic Accounting

Several years a ago, a medical device company was charged with improperly recognizing approximately RM1.5 million in revenue from bill-and hold transactions. One distributor placed orders with the medical device company for a total of approximately 15,000 units of a particular product in April and July. As part of the agreement with the distributor, the medical device company invoiced the distributor in September for the total 15,000 units for more than RM500,000.00 in September, but held the product at its refrigerated facility until the distributor requested the product, which did not occur until March the following year. Yet, the company still recorded the revenue in the previous year.

a) List down three accounts that this fraudulent transaction would affect? Provide a reason for each account listed.

[6 marks]

b) List and briefly explain five techniques that an auditor could use to uncover the nature of the relationship between the company and its distributor regarding these products.

[10 marks]