Discuss about the findings of this chart Discuss about any d

Discuss about the findings of this chart. Discuss about any differences any unaccurate information. Anything that seems to be unusual and could be symptoms of fraud.

Income Statement Horizontal Analysis 2015 2016 | Increase/(decrease) | % increase Net sales $550 $840 $290 5273% COGS $120 $160 $40 33.33% Gross Profit $430 $680 $250 58.14% Expenses Salaries $100 $150 $50 50.00% warehouse costs $80 $120 $40 50.00% Advertising $60 $90 $30 50.00% Taxes $45 $75 $30 66.67% Total Expenses $285 $435 $150 626\"340 Net Income $145 $245 $100 68.97% Balance sheet Horizontal analysis 2015 2016 | Increase/(decrease) | % increase Cash $460 $300 -$160| -34.78%

Solution

As we see that both side of the balance sheet are matched and each side has equal total. But total of balance sheet does not guarantee about no fraud hence we need to see some pattern and their correlation with other relevant items.

1. In case of income statement we see that there is an increase in sales by $290 but this increase in sales must show impact on either cash balance or on A/R balance in the balance sheet. But as we see balances of cash and A/R in the balance sheet then we find that there is a decrease in these balance. So this looks quite unusual that is why there may be some fraud in management of cash and A/R.

2. Apart from all items of the income statement shows almost same & relevant pattern of increase as per an increase in sales thus other remaining items of income statement are looking fair.

3. As we see in the balance sheet that accounts payable, note payable have been decreased hence it looks that cash have been gone out of the business but in assets side balance of cash also have been decreased but not by equal amount thus it looks that there may be some problem in the management of cash because arrangement of such cash out flow is a question of worry? No increase in common stock hence how this cash outflow is arranged?

Apart from this other items are looks good so this firm only need to check its cash managemnt system.