What is Fraud? Hall (2013) broadly defines it as “a false representation of material fact made by one party with intent to deceive and induce the other party to justifiably rely on the fact to his/her detriment” (p.97). ISA (NZ) 240 11(a) also defines it as “an intentional act by one or more individuals in the organisation or third parties using deception to obtain unjust or illegal advantage”. Van Peursem, Pratt, & Cordery (2011) indicate the false representation or intentionally deceptive act of corporate fraud as involving either “misappropriation of company assets or manipulation of accounting information” (p.56). Further, Hall (2013) discussed three factors that may contribute and explain why fraud is committed which are opportunity, pressure and ethics. He discussed that fraud is usually a result of existing pressure on and opportunity for the member of the organisation who has low level professional and personal ethics and has the predisposition to commit fraud. Since the deceptive acts and the usual suspects or perpetrators are the same in any business or sector, the differences then between private and public sector fraud are the victims of the fraud, how much they suffer because of it and possibly the different levels of pressure and opportunity, collectively known as fraud risk factors, to resort to fraudulent activities.
Companies in the private sector acquire their financial capital from investing shareholders and base their operations solely on maximising the returns of those investments. The shareholders therefore are at the receiving end of fraud committed in their companies and end up absorbing the resulting losses. The magnitude of fraud and losses are usually directly related to the complexity and size of the c...
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...nce gap may be remedied by first ensuring that auditors meet the existing requirements of the profession and the standards in detecting and reporting material misstatements due to fraud by having the required skills and knowledge, and putting in the required effort. Porter (1990) suggests that this can be achieved by continuing professional development and training, and enforcing strict compliance with the standards. Zikmund (2008) also suggests that auditors could perhaps develop (further) their proficiencies in fraud detection and forensic skills by improving knowledge in various fraud schemes and scenarios, and in applicable laws and regulations. Once profession-wide performance is improved and maintained, the profession could perhaps review and amend current standards and guidelines that could improve fraud detection and meet the society’s expectation half way.
Regardless of when financial statement fraud first occurred and the development of technology, it will be infinite. People may believe that as technology becomes more advanced, there will be less opportunity to commit fraud and it is easier to catch, but as technology evolves, so do the fraudulent schemes while weaving in the old ones but with a twist. There are always going to be individuals that feel that they will never be the one to get caught and believe that they are invincible to all. There remains a population that lives by means of entitlement, and therefore, minimizing their actions and rationalize them once given an opportunity and the perceived need equaling greed. As fraud evolves, individuals learn by other's mistakes and develop more complex schemes to provide confusion. According to the Wisconsin Law Journal (2012), “financial statement fraud is an ugly fraud with methods that are complex and often not understood by the average consumer or investor, and its results often aren’t tangible to the average person.” Therefore, by making a complex financial statement fraud, the gain is enormous with the amount of investigation overwhelming to determine a portion of the
Financial statement fraud makes up a marginal (less than 10%) percentage of occupational fraud cases, but the median loss is significantly higher at $975,000. A fraud scheme occurring over a significant amount of time will likely result in much higher median losses. For example, a fraud scheme lasting more than five years could result in median losses of $850,000. Larger companies are more likely able to implement strong anti-fraud controls due to size and finances, therefore, smaller companies become more susceptible to fraud schemes due to lack of proper preventive controls. Preventive controls include: implementing internal controls, continually updating the company’s Code of Conduct, rotating jobs/duties, and
Ulinski, Michael. "AN ANALYSIS OF SMALL COMPANY FRAUDS AND." American Society of Behavioral Society. Dept of Business, Pace University. 05 Feb. 2008.
[17] Robert K. Elliot, CPA and John J. Willingham PhD, CPA, Management Fraud: Detection and Deterrence. New York: Petrocelli Books, Inc., 1980, pp. vii.
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
Investing and lending public: These individuals and entities rely on independent auditors to carry out their “public watchdog” function rigorously, including reporting honestly and candidly on their clients’ financial statements. The integrity and efficiency of our nation’s capital markets are undermined when auditors do not fulfill their professional responsibilities. This will cause these individuals lose faith on the auditing work and might not cooperate with auditors anymore.
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA
In my opinion, fraud vulnerability of the selected organization had been assessed in a systematic way which helped the auditors in giving constructive suggestions for fraud prevention and detection in this case. The overall approach and methodology is very educative and it could be replicated in other environments too.
Humphrey, Moizer and Turley (1992), suggest that the common element in the various definitions of the gap is that auditors are performing in a manner that is at variance with the beliefs and desires of others who are party to or interested in the audit. The expectation gap may be decomposed into two components: the reasonableness gap and the performance gap. The former appears when people expect more of an audit than it can give in practical terms, such as detecting all instances of fraud. The latter refers to the gap between what auditors can reasonably be expected to do and what they are perceived to do. The ‘Performance gap’ can be further split into two – the deficient standards gap and the deficient performance gap.
Accounting fraud refers to fraud that is committed by a company by maintaining false information about the sales and income in the company books, when overstating the company's assets or profits, when a company is actually undergoing a loss. These fraudulent records are then used to seek investment in the company's bond or security issues. By showing these false entries, the company attempts to apply fraudulent loan applications as a final attempt to save the company by obtaining more money from bankruptcy. Accounting frauds is actually done to hide the company’s actual financial issues.
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
Fraud is defined as someone try to act with intention to cheat other people in order to acquire an unfair or illegal advantage. The fraud happens due to management override the internal control of the organisation and fraud will affect the financial reporting. The main categories of fraud that can affect financial reporting are fraudulent financial reporting and misappropriation of assets.
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”.