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ugaud.ch3b_1 - company’s financial targets • Excessive...

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11 Chapter 3 (continued) SAS 99: Auditors’ Responsibilities to Detect Fraud There are 2 types of intentional misstatements: (1) Fraudulent Financial Reporting (2) Misappropriation of Assets
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22 (1)Fraudulent Financial Reporting Usually committed by management to deceive financial statement users (2) Misappropriation of Assets Usually committed against an entity by its employees
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33 Fraudulent Financial Reporting Manipulation or falsification of accounting records or documents Misrepresenting (or omission of) events, transactions, and significant information Intentionally misapplying accounting principles (GAAP)
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44 Misappropriation of Assets Involves the theft of the company’s assets and includes: Defalcation Embezzlement Stealing assets Causing the entity to pay for goods or services not received
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55 SAS 99 discusses the Fraud Triangle Opportunities Incentives/ Pressures Attitude/Rationalization
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66 Risk Factors Related to Incentives/Pressures (see Table 3-4) Excessive pressure for management to meet the
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Unformatted text preview: company’s financial targets • Excessive pressure for management to meet 3rd party (e.g., analysts’) expectations • Company’s financial stability, growth or profitability is threatened • Management’s personal financial position is highly dependent on company’s 77 Risk Factors Related to Opportunities (see Table 3-5) • Nature of the industry • Ineffective monitoring of management • Complex or unstable organizational structure (e.g., high management turnover) • Inadequate Internal Controls 88 Risk Factors Related to Attitudes/Rationalizations (see Table 3-6) • Weak ethical standards for management behavior • Excessive interest by management in maintaining or increasing stock price or earnings • Management history of justifying inappropriate accounting based on materiality • Poor communication channels for reporting inappropriate behavior • Failure to correct known reportable conditions...
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