Sally Lauren is the external auditor for Modus Industries, a public company that manufactures disk drives. As she analyzes the numbers, she finds that the quick ratio, which has typically remained consistent, increased from 1.7 to 2.3 over the previous year. What type of financial statement fraud scheme could be occurring?

Question

Quizplus · Accepted Answer

The quick ratio is calculated by dividing liquid assets (cash, marketable securities, and receivables) by current liabilities. An increase in the quick ratio could indicate fictitious accounts receivable, as this would increase the numerator (liquid assets) without a corresponding increase in liabilities, thus artificially inflating the company's perceived liquidity.

Sally Lauren Is the External Auditor for Modus Industries, a Public