According to the SAICA (South African Institute of Chartered Accountants) Handbook (2011: 240), “fraud refers to the ‘intentional act’ by one or more individuals amongst the management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.” The primary function of the auditor is not to unearth fraudulent acts , but while performing the audit , the auditor is concerned acts of fraud which result in material misstatements in the financial statements. Cases of fraud involving one or more members of management or those charged with governance of an institution is referred to as Management Fraud.
Responsibilities for Fraud Detection
The Handbook of International Auditing, Assurance, and Ethics Pronouncements,
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Analysis of ZZZ Best Case Study
Auditors are not expected to uncover all misstatements, but to detect material ones. Whether an item is material or not will depend on the materiality levels set during the planning stage.
During the pre-engagement activities in risk assessment the auditor could have identified the following red flags
Specific risk factors indicators include the following —
As indicated in the case study Minkow had boldly predicted that revenues would exceed $50 million from the current $4.8 million ,which was unrealistic and achieving unduly aggressive targets for operating results, financial position, or cash flow.
An excessive interest by management in maintaining or increasing the entity's stock price or earnings trend through the use of unusually aggressive accounting practices. This excessive interest was shown by ZZZ Best overcharging customers in a credit card scam and issuing press releases claiming millions of dollars in bogus contracts, sending the company`s stock
Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s
The purpose of risk assessment is not to remove risks, but to take reasonable steps to reduce them. The process involves looking at the risk, and considering what can be done to make it less likely that the risk will develop into a reality. This can be done through implementing policies and codes of practice, acting in individual’s best interests, fostering culture of openness and support being consistent, maintaining professional boundaries and following systems for raising concerns.
For the case study provided with this Assessment Task, you are required to review risk management processes and determine scope and objectives, taking into account stakeholder input and both internal and external environmental factors affecting the organisation. With the information gathered, you are
With different industry definitions and viewpoints, fraud can be a tough issue for audit committee members to grasp for oversight purposes. The legal obligations of audit committee members have intensified because their standard duty of care and loyalty to the entity has increased in light of management fraud activities.
I believe that the term “engagement risk” implies that inherent client-specific risks face an auditor throughout the course of an audit, thus creating a risk that the auditor will be unable to successfully assess and manage these risks in the performance of the engagement and properly issue an appropriate opinion. The auditor must understand these client-specific risks, which include, but are not limited to, significant
2 Managing fraud risk: The audit committee perspective Fraud in a fi nancial statement audit
6. The risk assessment team will conduct an inspection of the department/area being assessed for risk or observe the process being assessed for risk in action. The members of the risk assessment team will individually document their findings on the “ABC Proactive Risk Assessment Worksheet” (Attachment A). To determine the appropriate score for each identified risk, the reviewer will consider information obtained through a physical tour of the facility, review of annual incident
When performing risk assessment procedures and related activities to obtain an understanding of the client and its environment, the auditor shall obtain an understanding of the following:
al, 2012, p. 214). Therefore, a material misstatement may not be detected during the audit. In addition, the audit may not detect errors under the materiality level, whether resulting from error, fraud, or misappropriation of assets. Anderson, Olds, and Watershed may decline to express an opinion or issue a report if the firm is unable to complete the audit for any reason.
The amount listed is the enrollment agreement was 10,020.00 which gives a difference of :
In Part I of the case, you performed preliminary analytical procedures for Pinnacle (pp. 245–247). The purpose of Part II is to identify factors influencing risks and the relationship of risks to audit evidence.
The manipulation of accounts fraud scheme is generally fulfilled by employees in top management positions and it usually involves making understatements or overstatements on financial statements making it very hard to detect. The process followed as Troy Adkins, (2015) explains is very simple. The financial statements are either overstated to show different figures in the earnings on the income statements making them look better than they actually are or the earnings in the current periods are manipulated in such a way that the revenue is understated or they inflate the current year’s expenses. The second process includes making the financial statements look worse than they are in reality. Deloitte, (2009) explains a number of ways which the accounts are manipulated where as one of the ways is to manipulate the reported earnings directly. They further explained that overstating the
In Part I of the case, you performed preliminary analytical procedures for Pinnacle (pp. 245–247). The purpose of Part II is to identify factors influencing risks and the relationship of risks to audit evidence.
The auditing firm has been in engagement with the company throughout the period when the fraud was being committed. One of the common and clear indicators of possible fraud was the company’s cash flow statement. The company experienced positive growth in its profits from the year 1996 through to the year 1998. However, a close analysis of the cash flow statement shows that the company had experienced negative figures of cash flow from both operating and investing activities and positive cash flow from financing activities which would not sufficiently offset the negative cash flows from operating and investing. It is therefore evident
As indicated by the article, it is an argument about stock repurchases, and monetary financial experts express those corporate managers utilize repurchases to signal in their good faith about the company 's promises for the market. In general, the accord by all accounts that supervisors regularly say that they are repurchasing stock keeping in mind the end goal to expand profit per share. However, the creators recommend that this suspicion is defective and that contracting the extent of a firm just includes esteem if the company is neglecting to win its cost of capital on its peripheral ventures. In light of this article tragically that the case does not