chapter 7 - Fraud and Interal Control - Fraud: dishonest...

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Fraud and Interal Control - Fraud: dishonest act by an employee that results in personal benefit to the employee at the cost of the employer. - Fraud triangle: shows the 3 main activities for why fraud occurs - Most important part of triangle is opportunity. Workplace must give opporunities, occur when workplace lacks control to detect and deter fraud. Ex: inadequate monitoring - Another factor: financial pressure: when fraud is done due to personal financial problems or debt. Want a lifestyle they cant afford - Third: rationalization: employees retionalize fraud. Ex: say you stole because employer is making more money than you and you deserve better. SOX - Sarbanes-Oxley Act, says all publicly traded U.S. companies must maintain an adequate system of control. Directors and executives must maintain reliable and effective controls - independent outside auditors must attest to the adequacy of the internal control system. - Public company accounting oversight board establishes auditing standards and regulate activity Internal control - consists of all methods used by an organization to guard its assets, enhance reliability of accounting records, increase effieincy of operations, ensure you are following the law. - Have 5 components o Control environment: responsibility of top management to make it clear that organization values intergriy, will not put up with unethical activity. (tone at top) o Risk assessment: companies must identify and analyze factors that create risk for the business and must determine how to manage risk o Control activities: reduce occurance of fraud, management must design policies and procedues to address risks o Information and communication: internal control system must capture and communicate all pertinent info to the organization and external parties o Monitoring: internal controls must be monitored for their adequacy. Bad things are reported to management. Principles of Internal controls - six principle of ctonrol activities o establishment of responsibility o segregation of duties o documentation procedures o physical controls o independent internal verification o human resource controls
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This note was uploaded on 12/14/2011 for the course ACCOUNTING 100 taught by Professor 1 during the Fall '11 term at Wisconsin.

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chapter 7 - Fraud and Interal Control - Fraud: dishonest...

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