ch 12 2notes - PRINCIPLES OF FRAUD EXAMINATION Lecture...

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PRINCIPLES OF FRAUD EXAMINATION Lecture Outline Chapter 12 (Part 2) – Fraudulent Financial Statement Schemes 5. Improper asset valuations – Generally, assets should be recorded at their historical (acquisition) cost. a. Inventory valuation i. Lower of cost or market ii. Overstating inventory through fictitious (phantom) inventory b. Accounts receivable i. Fictitious accounts receivable ii. Failure to write down a. Business combinations – Fraud-related issues include: i. Temptation to over-allocate the purchase price to in-process research and development assets, to write them off immediately ii. Establish excessive reserves with the intention to release them into earnings at a future date d. Fixed assets i. Booking fictitious assets – by creating false documents or recording equipment that is leased as owned ii. Misrepresenting asset value – Fixed assets should be recorded at their historical (acquisition) cost. iii. Improperly capitalizing inventory and start-up costs Capitalizing non-asset cost – interest and finance charges should be excluded from the cost of an asset Misclassifying assets – can skew financial ratios to comply with loan requirements e. Red flags associated with improper asset valuation i. Recurring negative cash flows from operations ii. Significant declines in customer demand iii. Significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate iv.
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This note was uploaded on 04/01/2012 for the course AC 562 AC 562 taught by Professor Online during the Spring '11 term at Keller Graduate School of Management.

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ch 12 2notes - PRINCIPLES OF FRAUD EXAMINATION Lecture...

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