Which of the following is most likely an indicator of potential revenue fraud?
a. A sudden increase in the sales discount percentage
b. A high sales return percentage
c. A rapidly increasing asset turnover ratio
d. A rapidly decreasing working capital turnover ratio
c
FEEDBACK: a. Incorrect. A decrease, not an increase, in the sales discount percentage could mean that discounts are not being recorded and fraud is occurring.
b. Incorrect. A high sales percentage simply means too many goods are being returned; a low percentage would be indicative of fraud.
c. Correct. When a company records fictitious revenues, it forces sales to increase, thereby increasing the asset turnover ratio.
d. Incorrect. Revenue fraud would artificially increase sales, causing the working capital turnover ratio to increase, not decrease.
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