Class 9 Handout

Class 9 Handout - ACCT361 AccountingInformationSystems...

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Click to edit Master subtitle style ACCT-361  Accounting Information Systems Fraud and Internal Controls Class #9 (we will have a controls lab for Class #10)
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Project 2 n Step 2 q Do not submit unless I received Step 1. q If you do not turn in Step 1 today, please submit it to me in soft copy. n Examples and grading objectives
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Review Risks n Economy Risks q Affect an entire economy n Industry Risks q Affect an entire industry n Enterprise Risks q Internal and external n Business Process Risks q Risks associated with business process objects n R’s, E’s, A’s, and R-E, E-E, E-A, R-A relationships n Information Process Risks q Risks associated with recording, maintaining, and reporting information about business processes
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Materiality and Risk Likelihoo d Of Loss Size of Potential Impact High Low Small Large Materiality of Risk
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Fraud n Definition: Any and all means a person uses to gain an unfair advantage over another person. n To be considered fraudulent, an act must involve: q A false statement (oral or in writing) q About a material fact q Knowledge that the statement was false when it was uttered (which implies an intent to deceive) q A victim relies on the statement q And suffers injury or loss as a result The definition is the same whether it is a criminal or civil fraud case. The only difference is the burden of proof required. v Criminal case: Beyond a reasonable doubt. v Civil case: Preponderance of the evidence (clear and convincing).
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Fraud n Fraud against companies are committed by white-collar criminals and can be: q Former and current employees (called knowledgeable insiders ) n Much more likely than non-employees to perpetrate frauds (and big ones) against companies. q Organizations use controls to make it difficult for both insiders and outsiders to steal from the company. n Researchers have compared the psychological and demographic characteristics of three groups of people: q White-collar criminals; violent criminals; and the general public n They found: q Significant differences between violent and white-collar criminals. q Few differences between white-collar criminals and the general public.
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Pressure Opportunity Rationalization The “Fraud Triangle” Donald Cressey
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Occupational Fraud n Three types of occupational fraud: q Fraudulent statements n Deceive investors and creditors n Cause a company’s stock price to rise n Meet cash flow needs n Hide company losses and problems q Asset misappropriation n Involves theft, embezzlement, or misuse of company assets for personal gain q Bribery and corruption n Corruption involves the wrongful use of a position, contrary to the responsibilities of that position, to procure a benefit. Information is from the ACFE’s 2004
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This note was uploaded on 02/05/2011 for the course SOM 492 taught by Professor Minecar during the Spring '11 term at George Mason.

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Class 9 Handout - ACCT361 AccountingInformationSystems...

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