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Using a Variety of Measures to Detect

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Submitted By mavis3107
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| Using a Variety of Measures to Detect FraudAnalytic, Nonfinancial, and Red Flags |
For
Dr. Pacini
ACG 6686:
Accounting Fraud Examination Concepts
-Spring 2013 –

Mavis Curley
Florida Atlantic University

April 25, 2013

|

I. INTRODUCTION

The use of analytical procedures on financial data to asses risk and detect fraud is standard practice for auditors; however, using only financial data has been shown to be ineffective in uncovering many frauds. (3-Brazel) Auditors and forensic accountants find that when nonfinancial performance measures and financial data are compared inconsistencies can be exposed, and fraud risk revealed, that otherwise would have gone undetected. (3-Brazel) There are a number of nonfinancial performance measures which can raise questions about financial reporting and the corporations environment; although they are not directly related to the accounting of the business they function as possible indicators or symptoms of fraud; this can help detect wrong doing sooner than analytical procedures alone. This paper will describe common nonfinancial performance measures and through the use of a fictional corporation, show how nonfinancial performance measures and can expose fraud and fraud risk and discuss the use of red-flags and the future of nonfinancial measures in auditing, investing and investigations.

II. NON FINANCIAL MEASURES AND CORPORATION X The American Association of Accountants (AAA) published a commentary paper on the NFM research done by Brazel et al, below is financial statement data from a fictional corporation created to illustrate the findings. (Figure 1)The percentage of sales figures for cost of goods sold, gross margin, and operating expenses remained steady throughout the three years while net income increased. Revenue grew at a steady rate while cost of goods sold, gross margin, operating

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