Question

The company recorded "bill-and-hold-sales" at year-end. Although the invoices were recorded as sales before year-end, the goods were stored in the warehouse and shipped after year-end.

a. Fraudulent Financial Reporting
b. Confirm transaction with the customer

Answer 1

The question involves addressing potential fraudulent financial reporting through bill-and-hold sales. It highlights the importance of confirming transactions with customers to ensure accurate financial reporting. Noel's response to noticing an error with a payment showcases necessary vigilance in financial matters.

Step-by-step explanation:

The subject in question involves a scenario in which a company engages in fraudulent financial reporting, by recording bill-and-hold sales at the end of the year. This practice could potentially inflate revenue figures by recognizing sales for products that have not yet left the warehouse or been delivered to customers. Such financial reporting can mislead stakeholders about the company's true financial position. On discovering such discrepancies, it's crucial for employees, like Noel in the given example, to raise concerns and ensure correct procedures are followed. After noticing a potential overpayment of $250,000, Noel's proactive approach involved reaching out to the accounting department and notifying his bosses to prevent the error.

Audit procedures, such as confirming transactions with customers, can help detect and prevent such practices. It involves auditors seeking confirmation directly from customers regarding the existence, terms, and status of specific sales transactions. This is to ensure that recorded sales were indeed authorized by and reflect the intentions of both parties involved.