Companies occasionally offer a coupon or warranty offer to increase sales. Management must estimate the redemption rate and record and expense the…

Companies occasionally offer a coupon or warranty offer to increase sales. Management must estimate the redemption rate and record and expense the corresponding liability. A manager could intentionally under estimate the redemption rate. The increased sales would be recorded in the current period to meet a sales goal, but the redemption cost would not be recorded until the following period. Could this situation happen to a company with a good control environment? Describe any steps a company could take to prevent such abuse. Who might be harmed? Do you consider this example to be management fraud or employee fraud? Describe how it fits the definition of your choice.

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