Introduction
Quantitative and qualitative data play crucial roles in detecting fraud in financial statements. Quantitative data (financial data) includes financial values deriving from general ledger postings and financial reporting. Auditors and forensic accountants mostly rely on the quantitative data for financial statement analysis, however, occasions arise that require additional qualitative data. Qualitative data (non-financial data) includes observations and documents that cannot be as easily measured. Auditors and forensic accountants compare the two forms of data found in a company’s form 10-K report and report possible fraud if any inconsistencies are found. For example, the income statement shows that a company’s revenues increased, but the MD&A discusses the company’s closing of fifty stores. Less stores should decrease revenues, so comparing the data results in red flags that require further analysis (Rufus, Miller, & Hahn 2015).
Company Selection & Brief History
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As a franchising entity, Choice Hotels International generated its revenue from franchising agreements, qualified vendor agreements, and other unnamed sources. However, it was also indicated that the first and fourth quarters (November-February) result in lower room revenues due to the off-season demand. Therefore, the likelihood of improper revenue recognition being committed by the franchisee is not out of the realm of possibilities. Since room revenues determine franchise fees, fictitious sales could improve franchise revenues for the franchisor (Choice Hotels International) (Interpretation: Commission Guidance Regarding Management's Discussion and Analysis of Financial Condition and Results of Operations 2003) (Choice Hotels International- Form 10-K