For abc company accounts payable decreases 22 from

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accounts receivable, inventory, prepaid expenses, and accounts payable. For ABC Company, accounts payable decreases 22% from 2010 to 2012. Also, Inventory increased 65.71% from 2010 to 2012. Typically it is unusual for inventory to be increasing at the same time that the accounts payable account is decreasing. This relation could be a result of bad buying policies, a non-GAAP compliant accounting method, unqualified personnel in charge of inventory control, or the computer inventory systems are too complicated for employees to use properly. Another explanation of why inventory could be increasing is because of stockpiling of inventory due to decreasing purchasing prices. However, that would not account for the large discrepancy between changes in inventory and changes in accounts payable.
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Common ratios that inspected to identify fraud include current ratio, days in receivable, unusual changes in accounts receivable turnover, and inventory turnover. Upon reviewing these ratios for ABC Company there does not seem to be cause for concern during the three-year period from 2010 to 2012. With that being said the red flags observed during the analysis should all be carefully investigated. In this situation there is unusual activity in Miscellaneous and Legal expense accounts and also changes in Payable and Inventory accounts that defy normal patterns. These accounts, the controls affecting them, and employees with access to the related business operations should be investigated and monitored. Not all problems are due to fraudulent activity, but it still good practice to identify the causes of these anomalies. These issues could be the result of poor business practices or even employee error. If ABC Company were to allow these issues to remain unaddressed, the opportunities for an individual to commit fraud will remain. Fraudsters would perceive the loose controls as possible means to conceal their illegal activity.
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