Relies on increasing sales revenue, affecting the income section of the income statement, thus overestimating profits.
The first way to prevent this is to look at the sales contract, and the second is to see if the physical object is transferred.
Foreign accounting principles I'm not sure but in China such things are easy to find, the cost of goods sold to inventory? A disk of physical can be found ah, is what I said above whether the transfer of physical, cash check payment, then the other side of the account a check will know, they transfer to their own account method is too stupid.
First, the large transaction in the Chinese company inside should not be able to pay in cash. This is problematic because of the need to keep the money safe.
Second, you buy equipment, that is, borrowing fixed assets, credit cash, you said the possibility of accounts receivable there, that is, entrusted to others on behalf of the purchase, or the equipment did not arrive, accounts receivable in the balance sheet, does not belong to the profit and loss account, will not be in the profit inside the display ah
Roughly and you say this case:
Comptronix Comptronix Corporation is a manufacturer of electronic components in Alabama, U.S.A. Three of the company's executives had been inflating profits until they confessed to the board of directors, which caused the company's stock price to plummet after the news broke. This CASE focuses on inherent risk and the company's internal controls.
The three executives engaged in a series of systematic frauds that overrode the company's internal control system and prevented the company's governance and external auditor from detecting them in time. Their first fraud occurred in their quarterly reports to the SEC in 1989, when they shifted some of their cost of goods sold into inventory so they could understate costs and overstate assets and inflate gross margins and total profits. Since the quarterly reports were non-audited, their fraud went undetected. However, in the 1989 annual report, fearing that the inflated inventory would be discovered by the auditor through the inventory process, they again made sales of this false inventory and inflated the accounts receivable. In order to create the effect that there was really a return on these sales, they then falsely stated that the company had purchased fixed assets from this false customer and wrote a check to the false customer as a purchase payment for the fixed assets, but instead of mailing the check, it was actually held in Comptronix Corporation's own account, and then used the check payment as a sales return on the prior sale of the false inventory again. This makes it look as if there was an inflow and outflow of funds to both the sales and purchasing operations, as if both were real.
This case involves "top side" accounting entries, lack of original basis for accounting documents, for the assets of the inventory is not in place, etc., for the case of the problem of the current audit procedures have been covered, such as JA testing and so on. The development of audit procedures is based on a case-by-case basis.
I hope this helps.