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While spotting red flags is difficult, vertical and horizontal financial statement analysis introduces a straightforward approach to fraud detection. Evaluate Company A’s Five Year Financial Data, please see the attached. (a)  Perform horizontal analysis of the above data to indicate any potential red flags regarding possible overstatement of sales. (b)  Perform vertical analysis of the above data to indicate any potential red flags regarding possible overstatement of the COGS.

While spotting red flags is difficult, vertical and horizontal financial statement analysis introduces a straightforward approach to fraud detection. Evaluate Company A’s Five Year Financial Data, please see the attached. (a)  Perform horizontal analysis of the above data to indicate any potential red flags regarding possible overstatement of sales. (b)  Perform vertical analysis of the above data to indicate any potential red flags regarding possible overstatement of the COGS.

FINANCIAL ACCOUNTING
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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While spotting red flags is difficult, vertical and horizontal financial statement analysis introduces a straightforward approach to fraud detection.

Evaluate Company A’s Five Year Financial Data, please see the attached.

  1. (a)  Perform horizontal analysis of the above data to indicate any potential red flags regarding possible overstatement of sales.

  2. (b)  Perform vertical analysis of the above data to indicate any potential red flags regarding possible overstatement of the COGS.

FIVE YEAR FINANCIAL YEAR 1 YEAR 2 Sales $100,000.00 $105,000.00 COGS $75,000.00 $78,750.00 Margin $25,000.00 $26,250.00 DATA FOR COMPANY A YEAR 3 YEAR 4 $110,250.00 $82,687.50 $27,562.50 $137,812.50 $66,150.00 $71,662.50 YEAR 5 $206,718.75 $9.535.00 $147,183.75
Transcribed Image Text:FIVE YEAR FINANCIAL YEAR 1 YEAR 2 Sales $100,000.00 $105,000.00 COGS $75,000.00 $78,750.00 Margin $25,000.00 $26,250.00 DATA FOR COMPANY A YEAR 3 YEAR 4 $110,250.00 $82,687.50 $27,562.50 $137,812.50 $66,150.00 $71,662.50 YEAR 5 $206,718.75 $9.535.00 $147,183.75
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