John Haug,controller of Tenant Company,is Reviewing the Year-End Financial Statements

question 68

Essay

John Haug,controller of Tenant Company,is reviewing the year-end financial statements with Tom Henry,the company president.The financial statements currently report a net income of $100,563,480.Tom is applying for a bank loan to build a new manufacturing facility and would like to report a net income of at least $125,000,000.Tom suggests accruing several sales based on orders received,even though the goods will not be shipped at year-end.He says,"If we record sales revenue for these two large orders,our net income should be more than $125,000,000.We will never notice the loss of these sales next year,because when we build the new manufacturing facility our sales revenue will dramatically increase."
a.Identify the type of fraud the president of the company wants to commit.Explain your answer.Who benefits by this fraud? Is anyone harmed?
b.Use the fraud triangle to identify conditions that the company is responding to in considering this action.c.What advice should John Haug,the controller,give the president about recording the revenue early?

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Definitions:

Correlations

Statistical measures that describe the extent to which two variables change together, indicating a relationship between them without implying causation.

Predictive Validity

How well a score from a given test or scale indicates an individual’s subsequent performance on a task that is related.

Psychometric Approach

A methodological and theoretical approach in psychology that emphasizes the study and measurement of psychological variables through tests and questionnaires.

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two quantitative variables.