CAEA3231 Integrated Case Study

The Anonymous Caller: Recognizing it’s a Fraud and Evaluating What to Do

Class : Monday, 5-8p.m.

Venue : BSP 2-2

Members : Chua Tzyy Shan CEA110016

Foong Tze Sum CEA1100

Lai Lik Jun CEA1100

Vincent Lok Yun Yu CEA110116

1. Objectives (Issue)

Senior executives of the company submitted an overstated quarterly financial

statement to the bank in order to convince the bank to continue fund the company
of its line of credit.

Improper cut-off of business transactions as the senior executives recognized sales

transactions from the next quarter in the current quarter financial statement.

Failure to comply with GAAP for Revenue recognition

2. Causes

Company is experiencing a severe cash shortage.

Bank halted funding the line of credit of the company.

Senior executives have no accounting-related backgrounds.

Booking of credit sales transactions that have not occur is a very common practice
(senior executives) which is not in line with GAAP in revenue recognition.

Quarterly financial statements all are unaudited as the external auditor has yet to
perform any kind of interim review.

The Human Resource vice president is the wife of the CEO.

3. Solution

To discuss with the senior executive once again on the legal consequences that
will arise from the fictitious transactions.

To discuss with the senior executive to:

1) To reverse the fictitious transactions created;

2) To prepare a forecasted quarterly financial statements based on past year
performance;
3) And to get clients to sign a long term business contract with the company
as an assurance to the bank so that the credit of the company will not falls
on the red line.

4. Recommendation

In our opinion, the best solution is to discuss and obtain “after-effect” of the fictitious
transaction that might arise especially in the eyes of law. Besides that, the best course
of action that will benefit both the company and bank is to reverse the fictitious
transactions. By having a future contract with clients will be the best option that will
build up the relationship with bank as:

1) Is a future business for company which ensure that the company will be able
to generate income in the future;
2) Boost bank’s confidence on the company.