Question

1. What characteristics must be presented for an act to be considered fraudulent? Give an example to support your answer.

2. Describe some of the most frequent fraudulent financial reporting schemes.

3. Explain the impact of SAS No. 99 on auditors' responsibilities.

4. Describe four ways companies can reduce losses from fraud.

Answer 1

Answer:-

1. A false statement, representation or disclosure, a material fact, which is something induces a person to act. An intent to deceive ; a justifiable reliance; that is the person relies on the misrepresentation to take an action; and an injury or loss suffered by the victim. Generally students response may vary depending upon the example they provide.

2. The most frequent fraudulent financial reporting scheme involves fictitious inflating revenues, holding the books open, i.e recognise of revenue before they earned actually, closing the books early, overstating the inventory or fixed assets, and concealing losses and liabilities.

3. SAS number 99 effective December 2002 request that auditor explicitly consider fraud risk when planning and performing an audit. Auditors must understand types and characteristics of fraud.order teams master review planes financial statements for areas susceptible fraud and communicate with with each other during planning of the audit. Auditors must ask management and audit committee members about any past are current instances of fraud. Since many frauds involve revenue recognition items must excise special care and testing in examining revenue accounts audit procedures and testing must be tailored in response to fraud risk assessment. Auditors must evaluate the risk of management override of controls and any other indications of occurrences all audit procedures and findings must be documented and communicated to management and the audit committee auditors must evaluate and recognise the impact of technology on fraud risk as well as opportunities technology mein provide to design fraud writing procedures.

4. The four ways that the company can reduce losses from fraud are as follows

Maintain adequate insurance, keep a current backup copy of all program and data files in a secure off site location, develop a contingency plan for fraud occurrences and other disasters that might occur.