You are a forensic accountant working on a case involving a company suspected of financial fraud. The
Question:
You are a forensic accountant working on a case involving a company suspected of financial fraud. The company is accused of overstating its revenues and assets, and understating its expenses and liabilities. Your task is to analyze the financial statements and other records to determine the extent of the fraud and calculate the impact on the company's financial statements.
Using the information provided, answer the following questions:
a) The company's financial statements for the year ending December 31, 2021, show total assets of $5,000,000. During your investigation, you discover that the company has included a property that it does not own in its list of assets. The actual value of the property is $500,000. Calculate the impact of this overstatement on the company's total assets. (5 marks)
b) The company's financial statements show a net income of $1,000,000 for the year ending December 31, 2021. However, during your investigation, you find that the company has understated its expenses by $200,000. Calculate the impact of this understatement on the company's net income. (5 marks)
c) The company's financial statements show revenues of $10,000,000 for the year ending December 31, 2021. During your investigation, you find that the company has overstated its revenues by $1,000,000 by recording sales that were never made. Calculate the impact of this overstatement on the company's net income. (5 marks)
Auditing and Assurance services an integrated approach
ISBN: 978-0133125689
15th edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley