The Cendant Fraud Case

First and foremost, the accounting system used should be updated. The case stated that the system was 30 years old and that prior accounting period transactions could not be locked down, which enabled internal control processes to be bypassed. Enhancing internal

The company’s revenues were not growing fast enough to meet these targets, so defendants instead resorted to improperly eliminating and deferring current period expenses to inflate earnings. They employed a multitude of imp roper accounting practices to achieve this objective. Among other things; the complaint charges that defendants:

Werle used Digital Analysis technique to uncover this fraud. She conducted computerized analytical review. She also conducted in depth research to investigate irregular activities and contracts that could have been entered in to by

Consider journal entry that recognized $35 million of revenue in 2001 from the EDS contract based on WorlCom’s expectation that the five-year required cumulative minimum payment would not be met. Based on your own analysis of GAAP, explain the propriety to impropriety of this journal entry.

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.

The auditing firm Coopers & Lybrand was accused of failing to perform a proper GAAS audit. One strategy the auditors could have performed was to follow the trail of revenue vs expenses. The auditor should have notice large sums ($10 million) of revenue going into one particular expense (Suppliers/Inventory). Considering Phar-Mor filed that they lost money in fiscal year 1984 and 1985 and they never cleared

Issue: Have the directors of the company breached their duties mainly related to the company’s insolvent trading.

The Degree of oversight related to the company’s control structure exercised by the management: Section 4, under topic Assignment of Authority and responsibility, of the questionnaire suggests that the Supervisors have broad levels of authority and the responsibility of day-to-day decisions lies on the shoulders of the supervisors and

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

With every internal control weakness a company needs to identify either a control policy or control procedure that will help prevent error or fraud from occuring in the future. Based on my suggestions as to what weaknesses existed at Goodner Brothers, Inc. I have suggested the policies or procedures that could be implemented to help prevent future issues. The internal control I would implement to hinder employee access to the accounting system would be to secure all computer programs with individual usernames and passwords to prevent access from others. The bookkeeper should be the only employee with access to the accounting system and to test this procedure the company would need to try and access the software without a username and password. To monitor the storage warehouse situation, the company should install computer scanning systems and video cameras at each location to supervize whether tires are being scanned in and out upon delivery and pick-up and to determine who and when these transactions are taking place. Semi-annual reviews should be conducted by sales managers to evaluate their sales representative. In addition, strengthening the tone at the top mentality should lie in the hands of each owner by personally reviewing all sales managers to create a top down effect.

Of these transactions, most of it was not in the interest of Enron of Enron’s shareholders; such as profits and cash flows were manipulated and grossly inflated which caused misleading to the investors. AA has also failed to recognise the Generally Accepted Accounting Principle (GAAP) – which is accounting rules used to prepare, present and report financial statements for a wide variety of entities used in United States. AA also did not advise Enron’s audit committee that Enron’s CFO – Andrew Fastow – and his helpers were involved in significant conflict of interests. Enron’s politics and internal control was also found out to be inadequate to protect the shareholders interests. These should have made known and clear as these are responsibilities of an auditor. AA has also make the mistake by which it did not act upon evidence found or neither has it find any audit evidence relating to the numerous share rights transferred to SPEs and the side deals between Enron and banks which remove the banks’ risk from transactions. In auditing, audit documentations are key part to the audit processes.

Secondly, although the audit might have been in its final stages, the fact that there had already been a sticking point between the auditors and CMD as to the validity and accounting procedures of the companies write-off’s of accounts receivable, once the audit team was made aware of the pending lawsuit of CMD by one of its clients for the exact same reason, they should have reconsidered their position on the evidence (suspension of judgment) and made sure to review that evidence before issuing an opinion.

AICPA Code of Professional Conduct principles prevents vises such as fraud that are experienced in accountancy field. Audit is the best measure of the effect of the fraud that are imposed to investors by accountants. The relationship of the investors and account holders are supposed to be affirmed through auditing to ensure accounting principles are upheld(Weirich, Pearson, & Churyk, 2010). Improper loss of the funds through propagation of the accountant officer should be treated as fraud and criminal activity that should lead to prosecution. Therefore, the paper seeks to relate two fraud cases that have been audited and presenting AICPA Code of

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

The video “Cooking the Books” discussed the ZZZZ Best case of fraud, it tells how and why fraud was perpetrated by Barry Minkow and why it was undetected for so long. According to the video, ZZZZ Best was founded by Barry Minkow in 1982; when he was sixteen years old, it started as a carpet cleaning company. But, due to high competition in the industry, low entry barriers, and bad internal control, this young entrepreneur started to have cash flow problems, thus creating a shortage of working capital. As a result of the financial pressure, he started to commit fraud by creating false accounts receivable and sales, false documents (using photocopies of real