Comptronix Corporation Case 4.2

2. Prepare a list of the controls described in the case. What control problems are they designed to address? Are the managers interviewed for the case justified in being proud of their company’s control system? Why or why not?

1. The three aspects of fraud - Perceived pressure, Rationalization, and Opportunity were present in the CIT case as follows:

Audit Risk Assessment can be done by this Audit Risk Model. This model consists of 3 types of risks i.e., inherent risk, control risk and detection risk. Eventually, audit risk is a product of these 3 types of risks (Griffiths, 2012).

Knowledge about risks related to the company evaluated as part of the auditor 's client acceptance and retention evaluation; and the relative complexity of the company 's operations. ( Auditing Standard No. 9 //. (n.d.).

The design and implementation and objectives of company controls are not adequate to meet the control objectives. The control environment control objective is ineffective. This control objective lacks a written policy on ethical conduct, is lacking oversight from the board of directors and audit committee, lacks a consistent style and philosophy from management, and lacks a strong commitment to competence. The risk assessment control objective is effective but lacks any antifraud program and controls. The information and communication control is ineffective. A virus has been detected and is affecting the files of the company. This control is lacking a strong IT department. The general controls financial reporting control objective is effective but is weak in detecting or preventing material misstatement. The monitoring control objective is ineffective; this control has need of an internal auditor.

Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”

Management’s attitude towards overriding controls: Section 5, under topic Integrity and ethical values, of the questionnaire suggests that override could occur without management’s approval, manager’s override is not explicitly prohibited and no interventions by the management were observed.

The chances of failures can be decreased by executing the checks on the systems. These keep an eye on the systems preventing risks from occurring, and these checks are avoided as the interior controls. The motivation behind the inner controls is to keep the organization safe from risks associated with the modernized accounting-system risks. Organizations change their manual accounting systems to computerized accounting systems for different reasons, this incorporates the points of interest, and the explanation behind utilizing electronic accounting information is instinct. The organizations embrace the policies of their

2 Managing fraud risk: The audit committee perspective Fraud in a fi nancial statement audit

CAS 300 requires auditors to their audit using a risk based model where the nature, timing and extent of audit procedures are based on the assessed risk of material misstatement. Pickett (2006) argues that for audits to be effective and efficient, much of the audit effort should be focused on areas that are considered to pose the highest audit risk. Additional audit procedures should be linked to individual audit assertions whereas other audit procedures need to be performed as and when needed. Thus, for an audit plan to be put in place, it is necessary for an auditor to come up with a risk profile of the client comprising an understanding of the business operating by the audit client, assess business risk and also perform its preliminary analytical review.

1. Provide some examples in business or daily life in which a controlled process is erroneously adjusted and an out-of-control process is ignored. What implications do these errors have?

c. Identify inherent risks for the audit of Pinnacle using the information from Parts I and II. For each inherent risk, identify the account or accounts that may be affected.

Problem: Bachand was particularly concerned about how best to motivate the managers of a corporate-owned store given that they did not share in its ownership. He wondered what control system features would make sense for the Corporate Owned stores?

1) Anna Thomas committed a fraudulent act by making personal charges and cash withdrawals on Rusher Automotive’s credit card. The accounting profession believes there are three conditions necessary for fraudulent behavior. (See Statement on Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit. For additional explanation, you may want to review Buckhoff [2001].)

Fraud is defined as a deliberate misrepresentation that causes a person or business to suffer damages, often in the form of monetary losses through deception or concealment. And Occupational Fraud as defined by the ACFE is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. Traditional fraud triangle theory by Donald Cressey explains that propensity of fraud occurring in an organization lies on three critical elements which are Pressure, Opportunity, and Rationalization.