Fraud auditing
Download
1 / 27

Fraud Auditing - PowerPoint PPT Presentation


  • 74 Views
  • Uploaded on

Fraud Auditing. Chapter 11. Types of Fraud. Fraudulent financial reporting. Misappropriation of assets. The Fraud Triangle. Incentives/Pressures. Opportunities. Attitudes/Rationalization. Examples of Risks Factors for Fraudulent Reporting. Incentives/Pressures.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Fraud Auditing' - venus-maxwell


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Fraud auditing

Fraud Auditing

Chapter 11


Types of fraud
Types of Fraud

Fraudulent financial reporting

Misappropriation of assets


The fraud triangle
The Fraud Triangle

Incentives/Pressures

Opportunities

Attitudes/Rationalization


Examples of risks factors for fraudulent reporting
Examples of Risks Factors for Fraudulent Reporting

Incentives/Pressures

Financial stability or profitability is threatened by

economic, industry, or entity operating conditions.

Excessive pressure exists for management to

meet debt requirements.

Personal net worth is materially threatened.


Examples of risks factors for fraudulent reporting1
Examples of Risks Factors for Fraudulent Reporting

Opportunities

There are significant accounting estimates that

are difficult to verify.

There is ineffective oversight over financial

reporting.

High turnover or ineffective accounting internal

Audit staff.


Examples of risks factors for fraudulent reporting2
Examples of Risks Factors for Fraudulent Reporting

Attitudes/Rationalization

Little communication and support of the

entity’s core values is evident.

A history of violations of laws is known.

Management has a practice of making

overly aggressive or unrealistic forecasts.


Examples of risks factors for misappropriation of assets
Examples of Risks Factors for Misappropriation of Assets

Incentives/Pressures

Personal financial obligations create pressure to

misappropriate assets.

Adverse relationships between management

and employees motivate employees to

misappropriate assets.


Examples of risks factors for misappropriation of assets1
Examples of Risks Factors for Misappropriation of Assets

Opportunities

There is a presence of large amounts of cash

on hand or inventory items.

There is an inadequate internal control over

assets.


Examples of risks factors for misappropriation of assets2
Examples of Risks Factors for Misappropriation of Assets

Attitudes/Rationalization

Disregard for the need to monitor or reduce

risk of misappropriating assets exists.

There is a disregard for internal controls.


Assessing the risk of fraud
Assessing the Risk of Fraud

SAS 99 provides guidance to auditors

in assessing the risk of fraud.


Professional skepticism
Professional Skepticism

SAS 1 states that, in exercising professional

skepticism, an auditor “neither assumes that

management is dishonest nor assumes

unquestionedhonesty.”


Sources of information gathered to assess fraud risks

Communication

among audit team

Inquiries of

management

Risk

factors

Analytical

procedures

Other

information

Identified risks of material misstatements due to fraud

Sources of Information Gathered to Assess Fraud Risks


Fraud auditing


Corporate governance oversight to reduce fraud risks
Corporate Governance Oversightto Reduce Fraud Risks

1. Create and maintain a culture of honesty

and high ethics.

2. Evaluate fraud risks and implement programs

and controls to mitigate identified fraud risks.

3. Develop an appropriate fraud oversight process.


Example elements for a code of conduct
Example Elements for a Code of Conduct

Organizational code of conduct

General employee conduct

Conflicts of interest

Outside activities, employment, and directorships


Example elements for a code of conduct1
Example Elements for a Code of Conduct

Relationships with clients and suppliers

Gifts, entertainment, and favors

Kickbacks and secret commissions

Organization funds and other assets


Example elements for a code of conduct2
Example Elements for a Code of Conduct

Organization records and communications

Dealing with outside people and organizations

Prompt communications

Privacy and confidentiality


Organizational factors contributing to risk of fraud

Collusion between

employees and

third parties

48

31

33

Inadequate

internal

controls

39

58

59

Management

override of

internal controls

31

36

36

2003

1998

1994

Organizational Factors Contributing to Risk of Fraud


Organizational factors contributing to risk of fraud1
Organizational Factors Contributing to Risk of Fraud

Collusion between

employees and

management

15

19

23

Lack of control

over management

be directors

12

11

6

Ineffective or

nonexistent ethics or

compliance program

10

8

7

2003

1998

1994


Learning objective 5
Learning Objective 5

  • Develop responses to identified

  • fraud risks.


Responding to the risk of fraud
Responding to the Risk of Fraud

Change the overall conduct of the audit

to respond to identified fraud risks.

Design and perform audit procedures

to address identified risks.

Design and perform procedures to

address the risk of management

override of controls.


Specific fraud risk areas
Specific Fraud Risk Areas

Revenue and accounts receivable fraud risks

Inventory fraud risks

Purchases and accounts payable fraud risks


Methods of uncovering fraud

Internal controls

77%

51%

52%

Internal audit

65%

43%

47%

Notification

by employee

63%

58%

51%

2003

1998

1994

Methods of Uncovering Fraud


Methods of uncovering fraud1
Methods of Uncovering Fraud

Accident

54%

37%

28%

Anonymous tip

41%

35%

26%

Notification

by customer

34%

41%

34%

2003

1998

1994


Methods of uncovering fraud2
Methods of Uncovering Fraud

Notification by

regulatory or law

enforcement agency

19%

16%

8%

Notification

by vendor

16%

11%

15%

External audit

12%

4%

5%

2003

1998

1994


Responding to misstatements that may be the result of fraud
Responding to Misstatements that May be the Result of Fraud

When fraud is suspected,

the auditor gathers

additional information

to determine whether

fraud actually exists.