Case #2 (10 marks) Analyze the Income Statement below. Complete the following: a) Calculate the relevant ratios indicating red flags for financial statement fraud. b) What changes are evident? c) What fraud scheme could be present and why? d) What are your detection steps to investigate the potential scheme? 2014 2013 % % $ $1,000,000 $600,000 $400,000 100 60 40 $ $800,000 $400,000 $400,000 100 50 50 Sales Cost of goods sold Gross margin Expenses: Selling expenses Admin expenses 15 $150,000 $100,000 $250,000 $150,000 $60,000 $90,000 10 25 15 6 $120,000 $88,000 $208,000 $192,000 $80,000 $112,000 15 11 26 24 10 14 Income before taxes Income taxes Net income 9