Nu-Ware, Inc., sells cookware with a specialized coating that protects the product and prevents sticking better than other coatings on the market. The design of the cookware is also unique, and during the first two years of operations, Nu-Ware’s sales increased dramatically. Inventory production increased continuously to meet the expanding demand. When the economy softened and sales started to level and even decline, Nu-Ware was caught with excessive inventory.
Shirley Morris, president of Nu-Ware, was concerned about the company’s image. Investors had purchased stock with the expectation of continuing growth increases. Shirley contacted several customers and persuaded them to accept merchandise shipments that had not been ordered in case their needs were higher than anticipated. She assumed the risk for her customers by deferring payment for 6 months and agreeing to allow the return of any unsold goods after the end of the year. As a result of this arrangement, the company continued to show sales growth and the inventory levels were reduced. As the new year passed, the recession stubbornly held on, and many customers returned excess stock.
Assume you are assigned to audit Nu-Ware and know nothing of the above arrangements with customers. What analytical measures could suggest to you that the shipping and billing procedures had changed?