2 Feb 2023


Financial Investigations: What Could Look Like Fraud But Be Explained by Industry Trends

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Academic level: University

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Case Study 1 

What are the possible fraud symptoms in this case? 

Eugene’s company is an example of businesses that participate in fraudulent documentation, intending to attract more investors. The past year was a challenge to their operations as their competitors have been successful in the market. Eugene’s business, however, considered it better not to indicate their actual sales. Such a surge serves as a fraud symptom that ensures investors thought the company maintained its success rate (Albrecht et al. , 2018 ). Another symptom of fraudulent documentation of finances is the failure to record loans despite the growth that existed for the assets ( Elsayed, 2017 ). When a business does not seem to have loans, investors would see it as an opportunity to work with them. Eugene’s company might have, therefore, chosen this fraudulent as it would attract investors. Creating such a positive perception makes the relevant parties view the business as successful and an investment opportunity. 

What could look like a fraud but be explained by industry trends? 

Eugene’s business maintained its inventory levels and expenses around the same level they reported in their past years. This decision may seem to indicate fiction in terms of stocks and expenditures. An assessment of the financial statements may result in understanding this decision as intending to allow the company only to increase their revenues ( Elsayed, 2017 ). This argument helps explain why maintaining inventory and expenditures at the same level may seem fraudulent. 

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The success of Eugene’s competitors is an indication of a peak in terms of demand. Trends in the industry may include seasons when there are higher demands for goods and services and low demand ( Korponai, Tóth & Illés, 2017 ). The move to hold inventory and expenses at the same level as the past years is essential in enabling clients to develop a perception that there will be access to goods in Eugene’s business after his competitors sell all their inventories. This period will also allow Eugene to increase prices because he will remain to be the sole supplier. Same expenses will help to indicate the profitability of this business after competitors’ stocks reduce. 


Albrecht, S. W., Albrecht, C. O., Albrecht, C. C., & Zimbelman, M. F. (2018). Fraud Examination (6th ed.). Cengage Learning. 

Elsayed, A. (2017). Indicators of the financial statement fraud (Red Flags).  Available at SSRN 3074187 . https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3074187 

Korponai, J., Tóth, Á. B., & Illés, B. (2017). Context of the inventory management expenses in the case of planned shortages.  Engineering Management in Production and Services 9 (1), 26-35. https://www.infona.pl/resource/bwmeta1.element.baztech-61d51abb-a633-4182-a1d1-070fd2a68e5d 

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StudyBounty. (2023, September 17). Financial Investigations: What Could Look Like Fraud But Be Explained by Industry Trends.


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