Comptronix Case
Comptronix Case
B. The most valuable ratio that could have been used by the auditor to detect fraud would have been the inventory turnover ratio. This ratio shows the sales in comparison to the total inventory on hand. They would have been able to see the significant decline in this ratio and been able to suspect that there was an error in inventory. The inventory would have been going up but the sales did not due to the factitious invoices. Another ratio that would be beneficial would be to look at the inventory as a percentage of sales for the same reasons as the other ratio. The auditor could have looked at competitor’s inventory turnover in table 2 to see how they don’t reflect the ratios in table 1. The last ratio to look at would be PPE as a percentage of sales. The competitors have a substantially lower ratio than that of Comptronix. This should have raised alarms of a potential fraud.
C.
1. Comptronix understated their expenses by capitalizing certain start-up expenses. They felt it would be too difficult to sort out. They recorded these expenses as costs towards capital assets usually inventory. 2. They overstated inventory in the same manner they understated expenses. They capitalized some of the expenses in the inventory. 3. Comptronix overstated equipment accounts by making fake equipment sales to customers. They never had a paper trail to record these transactions. They would make a fake check and end up depositing it back in there account without an endorsement. 4. The fact that Comptronix made fake equipment sales this in turn made the sales figure be overstated. They create fake invoices for inventory in their account. Normally these transactions have to be authorized by many people however they weren’t.
D. If the auditor looked at the inventory turnover ratio closer, they could’ve compared it to competitors. They would have realized that there was something wrong. Looking at the ratio of inventory
B. The most valuable ratio that could have been used by the auditor to detect fraud would have been the inventory turnover ratio. This ratio shows the sales in comparison to the total inventory on hand. They would have been able to see the significant decline in this ratio and been able to suspect that there was an error in inventory. The inventory would have been going up but the sales did not due to the factitious invoices. Another ratio that would be beneficial would be to look at the inventory as a percentage of sales for the same reasons as the other ratio. The auditor could have looked at competitor’s inventory turnover in table 2 to see how they don’t reflect the ratios in table 1. The last ratio to look at would be PPE as a percentage of sales. The competitors have a substantially lower ratio than that of Comptronix. This should have raised alarms of a potential fraud.
C.
1. Comptronix understated their expenses by capitalizing certain start-up expenses. They felt it would be too difficult to sort out. They recorded these expenses as costs towards capital assets usually inventory. 2. They overstated inventory in the same manner they understated expenses. They capitalized some of the expenses in the inventory. 3. Comptronix overstated equipment accounts by making fake equipment sales to customers. They never had a paper trail to record these transactions. They would make a fake check and end up depositing it back in there account without an endorsement. 4. The fact that Comptronix made fake equipment sales this in turn made the sales figure be overstated. They create fake invoices for inventory in their account. Normally these transactions have to be authorized by many people however they weren’t.
D. If the auditor looked at the inventory turnover ratio closer, they could’ve compared it to competitors. They would have realized that there was something wrong. Looking at the ratio of inventory