Simulation Question 1-1 have been changed. The information This simulation quest
ID: 395770 • Letter: S
Question
Simulation Question 1-1 have been changed. The information This simulation question is based upon a true set of facts; however, the names and places on question was obtained from publicly available sources million in annual sales, in B&U. with $226 medical andd,i purchasing manager for Books & U Incorporated Ohereafter B&U) in San Francisco dg producers of textbooks for the college and university market as well as ie Was there Fraud at B&U Incorporated? B&U) in S of the competitive Wendy Lee is purchasing one of the country's professions. about $75 million annually. consisting mostly of papeof manufacturing is done in China through contracts with stock and o ith the Chine sales personnel in the field. Because of the competitio textbook business, their profit margins are quite thin. B&U's purchases average covering used in the manufacturing process. The great majority of the B&U's headquarters consists of 126 employees, plus numerous The purchasing function is principally handled by three purchasing officers. Wendy Lee, the purchasing Since B&U is annual audi. It also has a staff of five internal auditors. All internal fraud matters within the company are re ferred to Mich manager, has two purchasing officers who condst ia sc BU is required by investors and lenders to have audited annual financial statements, it engages a large conduct its annual audit. It al Certified Fraud Examiner CPA fimto fin report to her, plus another eighteen clerical and support personnel o Michael K Examiner. The typical internal frauds at B&U involve defalcations by their cashiers, as well as a constant stream On January 28, 2004, Michael K of complaints wish to concerning alleged fraud by its salespeople and distributors wan was referred a telephone call. The male caller advised that he did not out" of doine d er since Wendy Lee with B&U. Although Kwan queried the caller for additional information, the person hung up the telephone. Required identity. However, he claimed to oety owever. he claimed to have been a "long-term" supplier to B&U in the area of books and sundries, and magazines. T 1. In order to solve a fraud, an accounting fraud examiner first generates a hypothesis. Assume you are Michael Kwan, generate hypothesis about what kind of fraud might have occurred in B&U. Word your hypothesis precisely. My hypothesis:... procedures that you would like a can be any procedures but they must be practical i 2. After a hypothesis is generated, the accounting fraud examiner tests the hypothesis. List four common sense perform in order to test your hypothesis in question I above. Your common sense procedures the context of this simulation question. My common sense procedure # 1 : My common sense procedure #2: My common sense procedure #3: . .. My common sense procedure#4: 3. In testing the hypothesis, the accounting fraud examiner might find that the hypothesis should be revised and retested. Assume three of your four common sense procedures in question 2 above do not support your hypothesis in question 1 above. Further assume that your hypothesis in question I above nceds to be revised and retested. State your revised hypothesis and list three additional common sense procedures to retest the revised hypothesis. Again, word your revised hypothesis precisely and the additional common sense procedures can be any procedures but they must be practical. My revised hypothesis: My common sense procedure #5 My common sense procedure #6: My common sense procedure #7: Note: You must answer all parts 1 through to 3, and must not exceed 1 page of typing using single-space and medium-font letters. In parts 2 and 3, any common sense" procedure means any procedure that you can think of that is appropriate for testing yo hypotheiExplanation / Answer
Hypothesis:
the term used by the supplier was " squeezed-out", in business terms this term is used when one person is trying to take an undue advantage of the other person, by not considering their interest, this is generally used in terms of mall shareholders. Now in this case the caller might be trying to hint Kwan that Lee might be taking hid undue advantage by taking the raw material from him on very cheap rates, and procuring raw material from other supplier at a higher rate, the other frim might be giving some percentage of the cut to Lee.
Following are the common sense procedures which can be followed to support the hypothesis:
Revised Hypothesis and common sense procedure:
Since the term squeeze-out is the main word emphasised on, one possibility can be that Lee might be, trying to reduce doing business with the caller and eventually squeeze or throw him out of the company despite the caller being a genuine supplier and serving the company since long and trying to do nepotism.
Common sense procedures support the above: