An internal auditor for a large computer company suspects that returned computer systems are being repackaged as new products and shipped to other customers before the defects have been repaired. Which of the following would be the most persuasive piece of evidence in support of the auditor's suspicions?
An unusual number of customer complaints would be the most persuasive evidence supporting the auditor's suspicion because it directly indicates that customers are receiving defective products, which aligns with the concern that returned, unrepaired systems are being repackaged and resold.
B is incorrect. Evidence of returns could be normal. However, A seems viable. Returned units could be repackaged/sold as new prior to year end, and the credit memos for the returned items issued after year end. This would benefit the company by overstating revenue for the year.
This is not a cut-off test. Also the test does not concern only the year end. Credit memos issued after year end for goods shipped before year end, can be a normal procedure when no fraud occurs. Here, goods received and reshipped are included in the normal inventory (Option D). The right option is solution C.
Correct answer should be B