11-1 Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users. Two examples of fraudulent financial reporting are accelerating the timing of recording sales revenue to increased reported sales and earnings, and recording expenses as fixed assets to increase earnings.
11-2 Misappropriation of assets is fraud that involves theft of an entity’s assets. Two examples are an accounts payable clerk issuing payments to a fictitious company controlled by the clerk, and a sales clerk failing to record a sale and pocketing the cash receipts.
11-3 Fraudulent financial reporting is an intentional misstatement or omission of…show more content… provide the opportunity for fraud to be perpetrated.
indicate a culture or environment that enables management to rationalize fraudulent acts.
2. How management could perpetrate and conceal fraudulent financial reporting.
3. How assets of the entity could be misappropriated.
4. How the auditor might respond to the susceptibility of material misstatements due to fraud.
11-9 Auditors must inquire whether management has knowledge of any fraud or suspected fraud within the company. SAS 99 also requires auditors to inquire of the audit committee about its views of the risks of fraud and whether the audit committee has knowledge of any fraud or suspected fraud. If the entity has an internal audit function, the auditor should inquire about internal audit’s views of fraud risks and whether they have performed any procedures to identify or detect fraud during the year. SAS 99 further requires the auditor to make inquiries of others within the entity whose duties lie outside the normal financial reporting lines of responsibility about the existence or suspicion of fraud.
11-10 The corporate code of conduct establishes the “tone at the top” of the importance of honesty and integrity and can also provide more specific guidance about permitted and prohibited behavior. Example of items typically addressed in a code of conduct include expectations of general employee conduct, restrictions on conflicts of interest, and limitations on relationships with clients