Question

If a company shows a substantial increase in Equipment and Leasehold Improvements without a corresponding increase in liabilities, what would be some indicators of fraud on the Balance Sheet and Income Statement to search for?

Answer 1

Any company substantially increase in equipment and leasehold improvements by creating a liability (Borrow from bank to pay off for the increment) or decreasing another asset (Pay off using Bank balance, other receivable or in exchange of other investments).

If the company substantially increase in equipment and leasehold improvements without corresponding Increase in liabilities not tantamounts to indicator of the fraud. The same company may substantially increase in equipment and leasehold improvements by decrese in other asset (Pay off using Bank balance and other means as aforesaid)

If the company substantially increase in equipment and leasehold improvements without corresponding Increase in liabilities and Decrease in assets may be an indicator of fraud of the financial statement (balance sheet).