Which of the Following Is Most Likely an Indicator of Fraud

question 19

Multiple Choice

Which of the following is most likely an indicator of fraud involving inventory overstatement?

• A) A sudden increase in the inventory turnover ratio
• B) A sharp decrease in gross profit margin
• C) A sudden decrease in sales
• D) A sudden increase in number of days' sales in inventory

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Definitions:

Normal Profit Margin

The average or expected profit margin that a business aims to achieve under normal operating conditions.

Allowance Method

An accounting technique used to account for expected credit losses on accounts receivable by anticipating uncollectible accounts.

Market Valuation

Market valuation is the process of determining the monetary value of a company or asset in the marketplace, typically reflected in its stock price or the total market capitalization.

Direct Method

A cash flow statement presentation that itemizes the major categories of gross cash receipts and payments, providing a clearer view of a company's cash flow from operating activities.