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CS Professional · Internal and Forensic Audit · Audit and Investigations

During an audit of Sundaram Retail Ltd, the auditor notes that the sales head, whose bonus depends on revenue targets, booked large sales on 30 March with goods returned in April, and revenue spikes just before each year end. This pattern most closely indicates which type of fraud?

This indicates fraudulent financial reporting through premature or fictitious revenue recognition. Large year-end sales reversed by returns after the period, coupled with bonus pressure linked to revenue targets, are classic signs of earnings manipulation rather than theft of assets.

  1. AMisappropriation of inventory by warehouse staff
  2. BFraudulent financial reporting through premature revenue recognitionCorrect
  3. CPayroll fraud through ghost employees
  4. DBribery of a government official

Explanation

Year-end sales reversed in the next period, combined with target-linked bonus pressure, suggest management overstating revenue. This is fraudulent financial reporting, not asset theft, payroll or bribery.

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