Ch03 Class Notes

It was one small step after another with more and

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Unformatted text preview: onalizations. There was a slow erosion of values over time.” erosion Source: Pamela Colloff, “The Whistle-Blower,” Texas Monthly, Texas April 2003, p. 141. April Chapter 3 Forensic and Investigative Accounting 18 Rationalization Behavioral psychologists call rationalization Behavioral “reframing.” Someone who is about to cheat will adjust the Someone definition of cheating to exclude his or her actions. definition “People who would never take $5 from petty cash People have no problem paying for a drink for a stranger and putting it on a company tab.” and Source: S.L. Mintz, “The Gauge of Innocence,” Source: CFO, April 2009, p. 56. CFO Chapter 3 Forensic and Investigative Accounting 19 Opportunity Opportunity Fraud Risk Factors AICPA’s Fraud Risk Factors – SAS 82 and SAS 99 identify factors that SAS auditors should look for that indicate greater risk of financial reporting fraud risk – See Table 3.4 on p. 3-22 Chapter 3 Forensic and Investigative Accounting 20 Opportunity Weak Internal Control COSO Components of Internal Control – – – – Control environment Risk assessment Control activities or control procedures Information and communication systems Information support support – Monitoring Chapter 3 Forensic and Investigative Accounting 21 Types of Controls Preventive Controls Segregation of duties Required approvals Securing assets Passwords Using document control numbers Drug testing Job rotation Computer backup Chapter 3 Forensic and Investigative Accounting 22 Types of Controls Detective Controls Reconciliations Reviews Event notifications Surprise cash count Counting inventory Chapter 3 Forensic and Investigative Accounting 23 Types of Controls Corrective Controls Training Process redesign Additional technology Quality circle teams Budget variance reports Chapter 3 Forensic and Investigative Accounting 24 Psychology of Fraud Fraud can be explained by three factors: • Supply of motivated offenders. • Availability of suitable targets. • Absence of capable guardians (e.g., internal controls). The three B’s -- babes, booze,...
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