You are conducting a forensic accounting investigation for a company and you suspect that a former employee may have committed fraud by inflating revenues. You obtain the company's financial records for the past five years and notice that revenues have increased significantly over the years. However, you also notice that the gross profit margin has remained relatively stable. To investigate further, you decide to perform a trend analysis of revenues and cost of goods sold (COGS) over the past five years.

a) Using the data below, calculate the revenue growth rate and the COGS growth rate for each year.

b) Calculate the average revenue growth rate and the average COGS growth rate over the five-year period.

c) Based on the results of your analysis, do you believe that the former employee may have committed fraud by inflating revenues? Explain your answer.

Data:

Year	Revenues ($ millions)	COGS ($ millions)
2020	20	12
2019	18	10
2018	15	8
2017	12	6
2016	10	5

Assume that revenues and COGS grow at a constant annual rate.

Answer rating: 100% (QA)

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