Capstone Research Project
Cassandra Quinn
ACC499 – Accounting Undergraduate Capstone
June 16, 2013
Professor Wendy Achilles

Capstone Research Project Auditing is the cornerstone of financial reporting because it provides attestations to the fairness and accuracy of a company’s financial records. Accountants and Auditors prepare and assess financial records to declare the fairness and accuracy of a company’s financial records. Auditors perform what is known as an audit which is a close inspection of a company’s financial records to ensure they are correct; during a financial audit all financial records of a company including ledgers, internal financial reports, official published reports, accounts payable, and accounts receivable will be examined. This type of inspection keeps a company honest and also reassures investors as to the financial status of the organization. Accountants must follow a common set of accounting principles, standards and procedures that companies use to compile their financial statements known as Generally Accepted Accounting Principles (GAAP) are a combination of authoritative standards and simply the commonly accepted ways of recording and reporting accounting information. GAAP rules attempt to cover such a broad field that it is filled with loopholes and allow for multiple ways of presenting the same data; these loopholes can be used by management to manipulate the earnings of an entity. During an audit the auditor may encounter “red flags” or circumstances that indicate the possibility that a material misstatement has occurred, when this happens the auditor must determine whether this misstatement is due to an error or fraud. In this paper we will examine several situations involving red flags, we will discuss GAAP rules, determine whether these rules are sufficient to minimize fraud, explain the consequences of the