...Chris Morton Ethics – Monday 6-9 Le-Nature, Inc. Case Study Gregory Podlcuky, Chief Executive Officer and Founder of Le-Nature, a Pennsylvania soft drink company, was accused of fraudulent activity costing investors, venders, and lenders around $684 million between 2000 and 2006. Podlucky received over $800 million in financing by falsely overstating the company’s revenues. This cooking of the books made Le-Nature seem more successful than it truly was, prompting outsiders to invest in its growth. Podlucky spent most of this investment money on his lavish lifestyle though, instead of on his company. Founded in 1992, and originally named Genesis Inc., Le-Nature was re-named in 2002 and considered itself an innovator in the bottling industry. Problems came to light in 2003, when the chief financial officer as well as to other highly ranked financial managers resigned unexpectedly. The fraudulent activity was difficult to figure out because it had many layers of fraudulent loan agreements. These loans created a false perception of a successful company. Characterized as a Ponzi scheme, the fraud was using newly invested money to pay off earlier debt obligations. Le-nature falsified invoices, checks, account statements, and other financial documents to verify business transactions and activity that never actually occurred. This falsely inflated the value of the company to banks and investors, who saw the business as a successful company that needed additional capital...
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...The auditor’s responsibilities for detecting fraud are to perform risk assessment procedures, such as inquiries of management and others, analytical procedures, and observation and inspection. Then the auditor must develop tests to determine any misstatements in the account balances or transactions. In order to identify the risks of material misstatements, the auditor must discuss with the audit team in regards to the risks of material statement due to fraud, inquire of management about the risks of fraud and how it is addressed, consideration of any unusual or unexpected relationships when performing analytical procedures, and understand the client’s period-end closing process and investigate unexpected period-end adjustments. The three conditions that are generally present when fraud occurs are management or employees have an incentive or are under pressure to commit the fraud, an opportunity to carry out the fraud, and those who commit the fraud are able to rationalize committing a fraud. In addition, individuals possess an attitude that allows them to intentionally commit the fraudulent act. The objective of brainstorming meet is to talk about the entity’s financial statements’ susceptibility to material misstatements. In depth, their objectives are to share insights about the entity, its environment, and the entity’s business risks, discuss how and when the entity is susceptible to fraud, and emphasize professional skepticism while performing the audit. The documents needed...
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...The Effect of SAS No. 99 on Auditor’s Responsibility to Detect Fraud The Auditing Standards Board (ASB) issued the Statement of Auditing Standard (SAS) 99 known as Consideration of Fraud in a Financial Statement Audit in November 2002. SAS 99 supersedes SAS 82 in response to its inadequacies, which were brought to light after the major accounting scandals including those at Enron, Worldcom, Adelphia and Tyco. It became effective for all financial statement audits on or after December 15, 2002 with the intention of rebuilding the confidence of investors into major public companies and reestablishing audited financial statements as a reliable component of corporate America. Once the standard came into effect, it was important to measure auditors’ reactions to the effectiveness of SAS 99. The overall conclusion is that SAS 99 has a positive effect on the auditors’ responsibility to detect fraud in financial statements as it not only focuses on the detection of fraud, but also takes on a more proactive approach to the prevention and deterrence of fraud. With the issuance of SAS 99, auditor responsibility has increased and improved the perceptions on auditor responsibility to third parties. The standard emphasizes professional skepticism and reminds auditors to no longer rely on client representations by keeping a questionable mindset. As quoted by Ramos, “SAS no. 99 reminds auditors they need to overcome some natural tendencies—such as overreliance on client representations—and...
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...the grade A.I.U. university Introduction To Criminal Law offenses against the public Introduction Any attempt to commit fraud against the public and or public trust must not be allowed to occur. When a case of fraud is exposed the victims of the case will lose trust in the way that a moral society is supposed to conduct themselves. In this case a judge used hurricane relief funds to afford an elaborate lifestyle and to take trips to the Bahamas. The judge also use this money to pay a civil suit against him for sexual harassment. The sum of twenty five thousand dollars was paid to the victim in the civil lawsuit. Though white collar crimes are not violent in nature they destroy the practice of moral conduct. Alfortish V. the state of Louisiana I chose to cover a case in Louisiana where a judge used over 800,000 dollars in public funds from the Horseman’s Benevolent and Protective Association. He spent this amount in a span of over four years. The judge is also in prison for 46 months for rigging an election that kept him the president of the association. He was also ordered to pay back 105,104 dollars that included the money paid in the civil suit filed against him. In 2010 the charges against the judge was defrauding the public, attempt to defraud the state and conspiracy to commit mail fraud. (Perlstein, 2013) Federal and Local Fraud laws in this case Under federal statute 1037 subsection F: any offense that was undertaken by the defendant in concert with...
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...Audit Week 2: Financial Statement Audits, Financial Statement Assertions and Audit Evidence Financial Statement Audit * A systematic process of objectively obtaining and evaluating evidence regarding assertions about the economic actions and events to ascertain the degree of correspondence between assertions and established criteria * Purpose: To enhance the degree of confidence of intended users in the financial statements by the expression of an opinion by the auditor Overall Objectives of the Auditor: * To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material aspects, in accordance with an applicable financial reporting framework * To report on the financial statements and communicate in accordance with the auditor’s findings Audit Process Overview: * Step 1: Client Acceptance and Retention * Step 2: Risk Assessment (Through understanding client business environment and operations Assess risks of material misstatement Assess Audit Risk) * Step 3: Audit Procedures Planning * Step 4: Test of controls (IF reliance on controls) * Step 5: Perform substantive tests * Step 6: Audit Completion and Reporting Financial Statement Assertions: * Assertions are representations made by management, explicit or otherwise, that are embodied in...
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...provide candidates with a greater depth of understanding of auditing concepts. Examination Objectives The objective of the 4-hour comprehensive examination is to test CGA candidates on the prerequisite knowledge required for advancement into PA1 and PA2, so as to ensure that the candidates have the broad-based knowledge in assurance needed to function properly in the association’s capstone courses. Examination Guidelines for Questions i) Question Type The following are guidelines on the type of questions and their approximate weightings: Percentage Weighting 20-30% 70-80% Question Item Multiple-choice questions Short-answer and/or short case-type problems and/or a longer case-type problem of both a qualitative and quantitative nature. Description...
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...the Company’s state of affairs and the profit and loss A/c gives a correct figure of profit of loss for the financial year. b. Secondary objective – it is also called the incidental objective as it is incidental to the satisfaction of the main objective. The incidental objectives of auditing are: i. Detection and prevention of Frauds, and ii. Detection and prevention of Errors. Detection of material frauds and errors as an incidental objective of independent financial auditing flows from the main objective of determining whether or not the financial statements give a true and fair view. As the Statement on auditing Practices issued by the Institute of Chartered Accountants of India states, an auditor should bear in mind the possibility of the existence of frauds or errors in the accounts under audit since they may cause the financial position to be misstated. Fraud refers to intentional misrepresentation of financial information with the intention to deceive. Frauds can take place in the form of manipulation of accounts, misappropriation of cash and misappropriation of goods. It is of great importance for the auditor to detect any frauds, and prevent their recurrence. Errors refer to unintentional mistake in the financial information arising on account of ignorance of accounting principles i.e. principle errors, or error arising out of negligence of accounting staff i.e. clerical errors. When we speak of the objective, we rationalize the thinking process, to...
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...provide candidates with a greater depth of understanding of auditing concepts. Examination Objectives The objective of the 4-hour comprehensive examination is to test CGA candidates on the prerequisite knowledge required for advancement into PA1 and PA2, so as to ensure that the candidates have the broad-based knowledge in assurance needed to function properly in the association’s capstone courses. Examination Guidelines for Questions i) Question Type The following are guidelines on the type of questions and their approximate weightings: Percentage Weighting 20-30% 70-80% Question Item Multiple-choice questions Short-answer and/or short case-type problems and/or a longer case-type problem of both a qualitative and quantitative nature. Description...
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...Issues in Planning a Fraud Investigation If there is sufficient reason to conduct a fraud examination, specific examination steps usually are employed. A fraud examination requires that all fraud allegations be handled in a uniform and legal manner. The investigation process should not be taken lightly, and should not be left to amateurs. A company often has only one chance to get the investigation right. The financial investigator should have a skill set that includes the ability to think like an accountant, which means attention to detail, basing opinions and conclusions on facts and evidence, and exercising professional skepticism. An investigator should be familiar with investigative methods and techniques, as well as be skilled at interviewing and interrogation. Examiners require a professional skepticism. This is an attitude that includes a questioning mind and a critical assessment of evidence. The auditor should conduct the examination with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the company and regardless of their belief about management’s honesty and integrity. Furthermore, professional skepticism requires an ongoing questioning of whether the information and evidence obtained suggests that a material misstatement due to fraud has occurred. Each fraud examination begins with the premise that all cases will end in litigation. Examiners will gather information...
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...– White Collar Crime in Government, Business, and Labor December 21, 2011. 1. Explain white collar crime in terms of various theories related to criminology and crime. There are several basic theories in which white collar crime can be explained relating to criminology and crime. We must look at several concepts and behaviors and take certain metaphysical, ontological, and epistemological assumption about the ultimate nature of reality and being into consideration. Example, is reality subjective or objective? Is causation simply a human construct, or is it something that can be definitively and objectively established? The latter were two questions to approach some explanation of the theories of white collar crime and the criminological concept of the offenders in this sector. There are the sociological, biogenetic, psychological, and sociogenic explanation to white collar criminology and crime. The most basic theory of criminality states that criminals are different in some fundamental way from non-criminals. Then the nature of the difference must be identified. On a Sociological level the propensity to commit crimes, is shown to vary among various segments of the population or among different organization. The biogenetic explanation of criminality became especially influential in the nineteenth century. This states that criminals are inherently different from other people, even down to their appearance. This explanation was promoted by:...
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...to forge checks payable to her own name. According to the 2010 Report to the Nations on Occupational Fraud and Abuse the perpetrator committed fraud by an asset misappropriation scheme in which the perpetrator steals or misuses an organization’s resources. Asset misappropriation is broken down into some sub-schemes like skimming, cash larceny, billing, expense reimbursement, check tampering. She was a well-trusted employee and even had previously caught other employees involved in embezzlement and frauds. So there was no reason to expect her of committing a fraud, costing the Company $204,000.00. In the Reports to the Nations study, the average organization annually loses were 5 % of its revenues due to fraud. This is an important topic and individuals have been committing these acts for as long as records have been kept. It is important to implement fraud programs to help reduce or eliminate fraud loses. One of the major things the Company could do to help prevent any future fraudulent activities is start educating the employees on preventing and detecting fraud. Employees should be trained in what constitutes fraud, how it hurts everyone in the company and how to report any questionable activities. According to the Report to the Nations on Occupational Fraud and Abuse organizations that have anti-fraud training for employees and managers experience lower fraud losses. Another thing that the Company could do is start utilizing surprise audits. The case...
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...forensic accountants even simpler. The forensic accountant is the bloodhound of Book keeping. External auditors look at the numbers but the forensic auditors look beyond the numbers. Only Forensic just means "relating to the application of scientific knowledge to a legal problem" or "usable in a court of law." Most of the crimes, such as homicides, investigated on a show like "CSI" are known as "crimes against the person." Forensic accounting is simply a specialty field within the broader arena of accounting. The types of crimes forensic accountants investigate are classified as "crimes against property." They investigate crimes such as fraud and give expert testimony in court trials. They also perform work related to civil disputes. Forensic accountants are also known as fraud investigators, investigative accountants, forensic auditors or fraud auditors. Although forensic accounting may not sound as glamorous as its other investigative counterparts, the field has received more attention in recent years. This is due in part to the high-profile, financial white-collar crimes involving large corporations, such as the Enron and Adelphia Communications scandals of 2001 and...
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...and a definite passive subject 2.. Real right – right or interest of a person over a specific thing (like ownership, possession, mortgage),without a definite passive subject against whom the right may be personally enforced.- there is only a definite active subject without any definite passive subject Law on Obligations and Contracts (Part 2) Nature and Effects of Obligations The following are the rights available to a creditor in obligations to give: If it is a determinate thing: 1. To compel specific performance 2. To recover damages in case of breach 3. Acquires personal right to the fruits of the thing from the time the obligation to deliver arises 4. Acquires real right over the thing once the thing has been delivered to him 5. Rights over the accessories and accessions. If it is a generic thing: 1. To ask for performance of the obligation 2. To ask that the obligation be complied with at the expense of the debtor. A determinate thing is one that is particularly designated or physically segregated from all others of the same class. A generic thing is one whose determination is confined to that of its nature, to the genus to which it pertains such as a horse, a chair. A contract of sale uses a determinate thing, while a contract of loan uses a generic thing. The following are the obligations of the passive subject in: a) Obligations to give a determinate thing: 1. To deliver the thing which he has obligated himself to give. 2. To take care of...
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...Question 5 (5 marks) 6 Question 6 (12 marks) 7 Question 7 (26 marks) 8 Question 2 (12 marks) a. If auditors expect clear evidence of material fraud during the planning phase of the engagement, the Canadian Auditing Standards require that the engagement team discuss where the financial statements may be materially misstated due to fraud. Agreed. The auditors should communicate so that the team maintains an independent state of mind at all times during the audit. The audit approach and tests/procedures are customized to the fraud assessment made. The audit team can incorporate random testing and sampling approach in the audit work which are difficult to anticipate by the client. Also the team understands where the focus will be as a result of the fraud assessment b. Theft of personal property from the business for the purposes of depriving the owner of its possession is a method of fraud referred to as lapping. Disagreed. Lapping refers to misappropriation of cash receipts. The theft is concealed by manipulation of A/R to cover the cash receipts. The cash received later is recorded toward the original A/R. The fraud is also covered by recording cash transfers to rare expenses or other accounts in G/L. c. A critical evaluation of evidence and professional skepticism are required for all financial statement audits, fraud examinations, and financial forensic examinations. Agreed. A critical evaluation of evidence is required to ensure that what has been stated is not...
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...Consideration of Fraud in a Financial Statement Audit 1719 AU Section 316 Consideration of Fraud in a Financial Statement Audit (Supersedes SAS No. 82.) Source: SAS No. 99; SAS No. 113. Effective for audits of financial statements for periods beginning on or after December 15, 2002, unless otherwise indicated. Introduction and Overview .01 Section 110, Responsibilities and Functions of the Independent Auditor, paragraph .02, states, "The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. [footnote omitted]"1 This section establishes standards and provides guidance to auditors in fulfilling that responsibility, as it relates to fraud, in an audit of financial statements conducted in accordance with generally accepted auditing standards (GAAS).2 .02 The following is an overview of the organization and content of this section: • • • Description and characteristics of fraud. This section describes fraud and its characteristics. (See paragraphs .05 through .12.) The importance of exercising professional skepticism. This section discusses the need for auditors to exercise professional skepticism when considering the possibility that a material misstatement due to fraud could be present. (See paragraph .13.) Discussion among engagement personnel regarding the risks of material misstatement due to fraud. This section requires...
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