PURPOSE OF THE ARTICLE The authors wrote this article to study the relative effects of threats of

White-collar criminals are hardly prosecuted due to the difficulty of identifying this crime. Typically, white-collar crime is less likely to be tracked, less likely to be reported, and less likely to be prosecuted. Therefore, Bill C-21, the Standing Up For Victims of White Collar Crime Act, aims to have tougher sentences for fraud which will help combat white-collar crime. Noting the devastating impact of white-collar crime in many Canadian communities, this legislation ensures that white-collar criminals face sentences that reflect the severity of their crimes. The legislation includes a mandatory minimum penalty of at least two years for fraud over $1 million. It also toughens sentences by adding aggravating factors that courts can

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

It is important to first gain an understanding of the various types of fraud, in order to aid understanding in regards to the prevention of fraudulent activity. This paper begins with a review of the definition of financial fraud, and identification of the different fraud types. Further, included is an examination of what motivates individuals to commit fraud, including an identification of some of the method in which people commit fraud. A discussion of the importance of the fraud triangle, and how rationalization contributes to fraud is a key area of focus. Finally, there is an examination of some controls that prevent and detect fraudulent behavior, including the value and importance of understanding the nature of fraud for

Fraudulent schemes are often ongoing crimes that can last for months or even years before detection. It has been identified that there are three factors that often combine to lead individuals to commit fraud: pressure or an incentive to engage in fraud, a perceived opportunity and the ability to rationalize fraudulent behavior. Because fraudulent activities are usually well planned and intentionally covered up, it is difficult for the auditor to detect these incidents. Although fraud does not happen as often as misuse and error, when it does occur, it negatively impacts organizations as well as the stakeholders. Most fraudulent schemes can be avoided with basic internal controls and effective audits and oversight; however, they remain undetected due to following factors-

Three conditions are necessary for financial statement fraud to occur. There must be (1) an incentive to commit fraud. (2) the opportunity to commit fraud, and (3) the ability to rationalize the misdeed. These conditions make up what antifraud experts call the fraud tringle (Libby, Libby, & Short, 2017, p 232). Some well-known names come to mind when I think of financial fraud (e.g. Bernie Madoff and his $50 billion Ponzi Scheme, WorldCom. Arthur Anderson). Also, the Sarbanes-Oxley Act of 2002 (SOx) comes to mind. SOx was a law that was implemented to oversee

It finally has been acknowledged that simply taking an ethics class does not provide the same level of experience as providing a more integrated approach to ethics within the learning process of a student within graduate business school. Gaining the ability and competence to understand ethics is only first step to what awaits the new leaders who will be required to live an ethical life but also sustain and encourage a corporate ethical environment from which staff can also make ethical decisions. The recent financial scandals along with the younger generation’s concerns for the environment has elevated and renewed the importance of corporate leadership in providing more transparent and straightforward accounting reports as well as addressing other issues that do not encourage a culture of ethics within their organization. Wrongdoing should be addressed and ethical decisions need to be encouraged and supported instead. CEOs and board members are just beginning to present themselves and their organizations as ethical decision-makers who are responsibly provide good and wise solutions for stakeholders of the company. In the Journal of Business Ethics, “Business Ethics in North America: Trends and Challenges” the authors reviewed and

Armstrong and Dennis R. Balch in the Journal of Legal, Ethical and Regulatory Issues, Volume 18, Number 2, 2015 they interview two former Chief Financial Officers, Aaron Beam and Weston Smith to conduct qualitative assessment using the Banality of Wrongdoing Model. During the assessment Mr. Beam and Mr. Smith were asked fourteen questions to gauge “the culture of competition, ends-biased leadership, missionary zeal, legitimizing myth, the corporate cocoon, banality of wrongdoing and greed.” The authors of this study concluded that Mr. Beam and Mr. Smith did not attempt to justify or rationalize their behaviors or their part in unethical practices and accounting fraud but rather admitted to being fully aware of their actions and knew the ramifications of doing such. Rather than trying to justify their behaviors it became more of anxiety and stress to both of them, however they “used the defense that they were more or less forced into the behavior by the Chief Executive Officer, Richard

Accounting and management are the major pillars of an organization that contributes to the country’s economy. Introduction of AICPA Code of Professional Conduct helps in controlling the business operation especially in the accounting and management departments. Accounting and management fraud have been experienced whereby through corruption or other means, entrusted managers and accountants tend to be selfish in undertaking their duties. These factors are well addressed by the AICPA Code of Professional Conduct principles. Therefore, the study seeks to introduce two case studies whereby the management fraud have been experienced. Furthermore, the study will incorporate the use of AICPA Code of Professional Conduct in controlling the situation to ensure harmonious business operation in the management.

11-2: The three main groups of people who commit financial statement fraud are organized criminals, mid- and lower-level employees, and senior management (Wells, 2013, p. 274). Senior management such as the CEO and CFO typically commit fraud to meet the expectations of Wall Street, preserve status, and/or receive performance bonuses (Wells, 2013, p. 274). Middle management will falsify financial statements in order to receive performance bonuses (Wells, 2013, p. 274). While organized criminals will try to obtain loans or engage in a pump-and-dump scheme (Wells, 2013, p. 274).

Every fraud scheme involves opportunities as it becomes the means for the perpetrators to commit the crime. Perpetrators actively pursue opportunities such as analyzing the circumstances that enable the fraud to be committed without getting caught. Pressures to commit fraud are based on various individual factors; for example, debt, status quo, or greed. The rationalization of the crimes are as demoralizing as the crimes, which relate to the pressure the perpetrator is conduced to in committing the crime. Tax fraud, divorce and bankruptcy fraud can all highly relate to the triangle fraud’s underlying factors in providing the source of the crimes that are presented in judicial court systems despite the notorious organizations or ex-love past

0). According to Chinniah, there has been a lot more financial statement fraud cases due to the pressures placed on managers by the shareholders, increasing competition among other companies, the significance of meeting analyst forecast for net income, and the increasing public expectations of that specific company to perform above industry standards (p. 0). Companies with the expectations of having higher standards are finding themselves facing legal and economic consequences for committing immoral and illegal activities (p. 0). Furthermore, Chinniah discusses the two principle categories of behavior committed by the employees who prepare the financial statements: macro-manipulation and micro-manipulation (p. 1). Both the macro and micro manipulation occur when the financial statement preparers are only interested in benefiting themselves (p. 1).

A study conducted by the Association of Certified Fraud Examiners (ACFE) surveyed 959 cases of reported occupational fraud between 2006 and 2008. The report broke fraud into three categories: fraudulent statements, asset misappropriation, and corruption. Ninety-nine of the 959 cases reported financial statement fraud with a median loss of two million dollars, making it the most costly of the fraud categories. In general, the study found that publicly traded companies that had implemented SOX controls reported fewer losses (70 to 96 percent) than those who had not implemented SOX controls. These results imply that implementation of SOX controls are directly related to a reduction in theft and other fraudulent behaviors. Surprisingly, it was noticed that in companies where management must certify the financial statements, fraud took approximately three months longer to detect than in those companies where management was not required to certify the financial statements. However, due to the complexity and relative newness of SOX and the complexity of the businesses and the ingenuity of people, it is not surprising that SOX has not been a booming success. Hopefully, over time, all the wrinkles will be ironed out allowing for deterrence or immediate detection to be attainable. (Rappeport,

Crimes are perceived to be committed by those in the lower income brackets that are in desperate needs financially. History, however, has been shown that those who are financially wealthy take advantage of opportunities that could help further destroy the lower and middle class as well by using bankruptcy fraud. The average white collar worker has more resources and power to deprive people, especially when it comes to the basic necessities in life. The basic need of having good credit is the dream everyone wants in order to be financially strong. Since the use of bankruptcy fraud has become notorious in today’s society, gaining proper knowledge with regards to the effects and penalties of the crime helps build awareness and deter

This study aims to understand what effect has an ethical framework in accounting. In particular, we examine the influence of ethics on earnings management, financial reporting, and external accounting. Today, the commercial environment reveals the unethical behavior of management and accountants through the manipulation of accounting records to boost the company’s stock price, falsified financial statements to mislead investors, failure of auditors to correct errors and omissions due to client’s pressure and personal material interests.

Ethical issues have greatly transformed in our lives since the great Enron, Xerox and other huge corporations proposed big profits showing earnings of billions of dollars and yet in reality facing bankruptcy. These corporations faced great trouble with the federals and state for manipulating financial statements. But not only corporations can be blamed on this, accounting firms were involved in this as much as the corporations were. With the business stand point, ethics comprises of principles and standards that guide behavior. Investors, traders, customers, and legal system determine whether a specific action is ethical or unethical. Ethical issue is a vast subject, but we will look at the niche