Which of the following is most likely to be indicative of a potential revenue fraud?
A) a sudden increase in the sales discount percentage
B) a high sales return percentage
C) a rapidly increasing asset turnover ratio
D) a rapidly decreasing working capital turnover ratio

Question

Quizplus · Accepted Answer

When a company records fictitious revenues, it forces sales to increase, thereby increasing the asset turnover ratio. Thus, c is the correct statement. answer a is wrong because a decrease, not an increase, in the sales discount percentage could mean that discounts are not being recorded and fraud is occurring. answer b is wrong since a high sales percentage simply means too many goods are being returned; a low percentage would be indicative of fraud. Finally, answer d is incorrect because revenue fraud would artificially increase sales, causing the working capital turnover ratio to increase, not decrease.

Which of the Following Is Most Likely to Be Indicative