Answered: What might be a valid reason for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

You keep looking over the financial statement to see where your analysis is going wrong, but you can’t see any problems-it just looks like inventory is getting larger and larger, but you know that you haven’t seen growth in the actual levels of inventory that the financials seems to be indicating. You just finished a comprehensive audit of all the physical controls of inventory so you doubt that inventory is being stolen, Everything else in the financials seems to look fine, In fact, they seem to indicate that the company is improving in profitability.

Required

What might be a valid reason for increase in inventory cost.
Assuming that fraud is being committed, how could a fraud perpetrator commit this type of fraud.
What could be done to prevent this type of fraud?

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