What are the red flags identified on the financial statement. Calculate the relevant ratios.

What changes are evident?

What fraud scheme could be present and why?

What are your detection steps to investigate the potential scheme?

2014

2013

Sales

$1,000,000

100%

$800,000

100%

Cost of goods sold

600,000

60%

400,000

50%

Gross margin

$400,000

40%

$400,000

50%

Expenses:

Selling expenses

$150,000

15%

$120,000

15%

Admin expenses

100,000

10%

88,000

11%

$250,000

25%

$208,000

26%

Income before taxes

$150,000

15%

$192,000

24%

Income taxes

60,000

6%

80,000

10%

Net Income

90,000

9%

$112,000

14%