Fraud Auditing and Different type of fraud Introduction Over the years, the role of auditors become increasingly important especially in a capitalist economy as the process of wealth creation and political stability depends heavily upon confidence in processes of accountability and how well the expected roles are being fulfilled. An auditor has the responsibility for the prevention, detection and reporting of fraud, other illegal acts and errors is one of the most controversial issues in auditing
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REQUIRED [1] Three conditions are often present when fraud exists. First, management or employees have an incentive or are under pressure, which provides them a reason to commit the fraud act. Second, circumstances exist - for example, absent or ineffective internal controls or the ability for management to override controls - that provide an opportunity for the fraud to be perpetrated. Third, those involved are able to rationalize the fraud as being consistent with their personal code of ethics
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CHAPTER 6 Audit Planning, Understanding the Client, Assessing Risks, and Responding Review Questions 6–1 In their investigation of a prospective client, the CPAs should assess the backgrounds and reputations of the prospect and its major shareholders, directors, and officers. Thus, inquiries are made of underwriters, bankers, and attorneys that conduct business with the prospective client. Also, the CPAs are required to make inquiries of the prospect’s predecessor auditors
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CHAPTER 6 Audit Planning, Understanding the Client, Assessing Risks, and Responding Review Questions 6–1 In their investigation of a prospective client, the CPAs should assess the backgrounds and reputations of the prospect and its major shareholders, directors, and officers. Thus, inquiries are made of underwriters, bankers, and attorneys that conduct business with the prospective client. Also, the CPAs are required to make inquiries of the prospect’s predecessor
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phase of the audit: Kent: Do you have all the audit programs updated yet for the SCS engagement? Smith: Mostly. I still have work to do on the fraud risk assessment. Kent: why? Our “errors and irregularities” program from the last year is still OK. It’s passed peer review several times. Besides, we don’t have specific duties regarding fraud. If we find it, we’ll deal with it then. Smith: I don’t think so. That new CEO, Mint, has almost no salary, mostly bonuses and stock options. Doesn’t
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culturally. As the world has evolved, so has business, and as business has evolved so has auditing. The concept of auditing is as old as civilization. The need for a knowledgeable, external, third person to verify transactions or accounts and detect fraud has been present since the advent of trade and accounting. Thus the goal of auditing, in this sense, has not changed since. Teck-Heang Lee observed that “auditing serves as a mechanism to monitor conduct and performance, and to secure and enforce accountability
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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
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accounting fraud and auditor legal liability c a S eS inc lu de d in t hiS Se ction 4 89 99 4.1 Enron Corporation and Andersen, LLP Analyzing the Fall of Two Giants . . . . . . . . . . . 4.2 Comptronix Corporation 4.3 Cendant Corporation . . . . . . . . . . . . . . . . . . . . . . Identifying Inherent Risk and Control Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 111 119 127 137 Assessing the Control Environment and Evaluating Risk of Financial Statement
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this way they can develop more accurate expectations for financial statements assertions. 2. Identify and briefly describe the specific fraud risk factors present during the 2000 NextCard audit. How should these factors have affected the planning and execution of that engagement? The three examples of risk factors are pressure, opportunities, and rationalizations. The pressure factor grew when NextCard wanted to improve growth as rapidly as possible. They tried to extend a $1 Billion dollars of credit
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this way they can develop more accurate expectations for financial statements assertions. 2. Identify and briefly describe the specific fraud risk factors present during the 2000 NextCard audit. How should these factors have affected the planning and execution of that engagement? The three examples of risk factors are pressure, opportunities, and rationalizations. The pressure factor grew when NextCard wanted to improve growth as rapidly as possible. They tried to extend a $1 Billion dollars of credit
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