Question

Discuss the specifics of the Sunbeam: Incentives and Pressure to Commit Fraud case and how you believe the it relates to management fraud and and audit risk.

Answer 1

This risk factors relating to misstatement arising from misappropriation of assets, misappropriation of assets involves the theft of an entity’s asset and is often perpetrated by employees in relatively small and immaterial amounts. However, it can also involve management   who are usually more able to disguise or conceal misappropriation in ways that are difficult to detect.

Incentive and Pressures:

Personal financial obligations may create pressure on management or employees with access to cash or other assets susceptible to theft to misappropriate those assets.

Adverse relationships between the entity and employees with access to cash or other assets susceptible to theft may motivate those employees to misappropriate those assets. For example,

· Recent or anticipated changes to employee compensations or benefit plans.

· Known or anticipated future employee layoffs.

· Promotions, compensation or other reward inconsistent with expectations.