A Focus on Fraud feature presented in the chapter discussed the SEC's complaint against Benjamin Silva III, Tvia's vice president of worldwide sales. The complaint alleges a number of actions taken by Silva. For each of the following actions, indicate the accounting and/or auditing issue that should be of concern to the auditor and an action that might be taken by the auditor.
a. In an effort to increase revenue, Silva began entering into side agreements with Tvia's customers. Typically, these side agreements promised the customer extended payment terms and obligated Tvia to find a buyer for any product that the customer was unable to sell.
b. On multiple occasions Silva caused Tvia to misapply a payment it received from a new customer in order to pay down delinquent amounts owed by a separate customer. For example, the complaint notes that one instance concerns Ricom, a Chinese customer that by late 2005 was past due on Tvia invoices totaling more than $740,000. In February 2006, Silva convinced another customer, Protech Perennial Limited (Protech), to submit a $100,000 deposit for a then unavailable line of Tvia chips. On or about February 24, 2006, Tvia received a wire transfer from Protech for $100,000. "In order to convince Tvia's finance staff to apply these funds to Ricom's account, Silva falsely claimed that Protech had wired the money on Ricom's behalf, due to purported Chinese Government restrictions on Ricom's wiring money out of that country. By this conduct, Silva mislead [sic] Tvia's CEO, CFO and auditors regarding the collectability of past due amounts owed by Ricom."