You're a part of the BFF Partners (BFF) audit team working on the audit for Cody Limited, who specialise in women's designer footwear, for the year ending 31 December 2020 Cody Ltd The following issues have been uncovered at Cody Ltd Cody has experienced a significant decline in customer demand, which resulted in negative profit growth in the first half of the year The Board of Directors agreed to give the CEO a special bonus if she can turn the negative profit growth into positive profit growth The CFO confided that he suspected Cody was in breach of its loan covenants, which are based on accounting profits, during the course of the 2020 financial year The CFO further indicated that the Board had set aggressive targets to achieve desired profits The accounts payable clerk is able to approve and pay transactions of up to $2000 per transaction You have learned that the accounts payable clerk is currently having trouble paying his mortgage Required For each of the issues detailed above (items 1 3) identify any potential fraud risk factor(s) that indicates fraud could be an issue at Cody Ltd and explain whether these factors may lead to fraudulent financial reporting or misappropriation of assets (6 marks)

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Posted on Jul 09, 2024

You're a part of the BFF Partners (BFF) audit team working on the audit for Cody Limited, who specialise in women's designer footwear, for the

You're a part of the BFF Partners (BFF) audit team working on the audit for Cody Limited, who specialise in women's designer footwear, for the year ending 31 December 2020. Cody Ltd. The following issues have been uncovered at Cody Ltd:

Cody has experienced a significant decline in customer demand, which resulted in negative profit growth in the first half of the year. The Board of Directors agreed to give the CEO a special bonus if she can turn the negative profit growth into positive profit growth.
The CFO confided that he suspected Cody was in breach of its loan covenants, which are based on accounting profits, during the course of the 2020 financial year. The CFO further indicated that the Board had set aggressive targets to achieve desired profits.
The accounts payable clerk is able to approve and pay transactions of up to $2000 per transaction. You have learned that the accounts payable clerk is currently having trouble paying his mortgage.

Required

For each of the issues detailed above (items 1 3) identify any potential fraud risk factor(s) that indicates fraud could be an issue at Cody Ltd and explain whether these factors may lead to fraudulent financial reporting or misappropriation of assets. (6 marks)