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%.

In a few paragraphs please explain which company displays more of a red flag for fraud than the other and reasons why? Explain, and can you name the type of management fraud we auditors call this type of financial statement fraud?