lecture_07 4240

lecture_07 4240 - ACCT 4240 - Auditing Fraud Awareness...

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ACCT 4240 - Auditing Fraud Awareness Auditing
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Brief History 1900s -- Fraud detection was a primary objective of the audit 1940s -- Detection of fraud considered to be a “responsibility not assumed.” 1960s -- Auditor acknowledged responsibility for detecting fraud that would normally be uncovered by an examination performed in accordance with GAAS. 1980s -- Auditor had responsibility to search for fraud that may have a material affect on the financial statements. 1997 -- SAS No. 82; 2002 – SAS No. 99 Video (VIDEO)
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Types of Fraud FRAUD Management Fraud Employee Fraud Financial Statement Fraud Misrepresentation of material facts Misappropriation of assets Concealment of material facts Illegal Acts Bribery Conflict of Interest Embezzlement of money or property Breach of fiduciary duty Theft of trade secrets of intellectual property Illegal acts
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Why People Commit Fraud Studies show that employees are likely to commit fraud when four conditions exist: PRESSING FINANCIAL NEED OPPORTUNITY REASONABLE JUSTIFICATION LACK OF MORAL PRINCIPLES
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Embezzlement Formula MOTIVE + OPPORTUNITY + RATIONALIZATION = CRIME [FRAUD]
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Profile of Fraud Perpetrators The fraud perpetrator is more likely to be an ordinary member of the community: intelligent, respected, never suspected of dishonesty, NOT YOUR TYPICAL CRIMINAL TYPE. MORE LIKELY TO BE: A woman Married Church member Older Heavier Have children Have a higher education Never been arrested Have high self-esteem High achiever LESS LIKELY TO BE: Divorced Alcoholic Tattooed
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Two Basic Types of Fraud Occupational fraud – fraud against the company, usually involving misappropriation of assets Financial statement fraud – fraud to enhance the company to the detriment of outsiders
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Financial Statement Fraud: Prevention and Detection Review in Journal of Accountancy , December 2002, pp. 89−90: Financial Statement Fraud is a good reference for understanding some of the current corporate financial statement problems in making sure that financial statements are correct.” Review in Internal Auditing May/June 2002, p. 46−47: “This professional reference is highly recommended reading for all internal auditors and should be included in all internal auditing libraries and used in internal auditing training programs. This book should hit the bestseller lists rather quickly.” by Zabihollah Rezaee, published by John Wiley & Sons, March 2002
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Financial Statement Fraud Definition – Deliberate misstatements or omissions of amounts or disclosures of financial statement to deceive financial statement users, particularly investors and creditors. Financial statement fraud has become daily press reports challenging the corporate responsibility and integrity of major companies such as Lucent, Xerox, Rite-Aid, Waste Management, Microstrategy, KnowledgeWare, Sunbeam, Cendent, and ZZZ Best.
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Five interactive factors that may explain and justify the occurrence of financial statement fraud FSF = Crime Incentives Monitoring End Results Cooks Recipes
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Why do people commit fraud?
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This note was uploaded on 03/08/2012 for the course ACCT 4240 taught by Professor Staff during the Spring '08 term at U. Memphis.

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lecture_07 4240 - ACCT 4240 - Auditing Fraud Awareness...

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