Chap 8 Risk Of Fraud And Illegal Acts

Question 1

Common fraud perpetrator red flags:

Answer 1

• Living beyond their means
• Experiencing financial difficulties
• Excessive organizational pressure

Question 2

Fraud

Answer 2

Any illegal act characterizing any deceit, concealment, or violation of trust. Frauds are perpetrated by parties or organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantages

Question 3

Misappropriation of assets:

Answer 3

• Pilferage
• Embezzlement
• Defalcation

Question 4

Fraudulent financial reporting

Answer 4

Ask that involve falsification of and organize Asian’s financial statements (for example, overstating revenues, understating liabilities and expenses)

Question 5

Occupational fraud

Answer 5

Fraud in the workplace:

• Falsification of financial statements
• Asset misappropriation
• Corruption

Question 6

Root causes of fraud: or Fraud triangle includes:

Answer 6

• Perceived opportunity
• Perceived need (pressure)
• Rationalization

Question 7

Governance

Answer 7

The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives

Question 8

Risk assessment

Answer 8

The identification and analysis (typically in terms of impact and likelihood) of relevant risks to the achievement of an organization’s objectives, forming a basis for determining how the risks should be managed

Question 9

Risk response

Answer 9

An action, or set of actions, taken by management to achieve a desired risk management strategy. Risk responses can be categorized as risk avoidance, reduction, sharing or acceptance

Question 10

Fraud detection

Answer 10

According to the ACFE’s Report to the nation, occupational fraud are much more likely to be detected by a tip then by audits, controls, or other means

Question 11

Tone at the top

Answer 11

The entity-wide attitude of integrity and control consciousness , as exhibited by the most senior executives of an organization. See also control environment

Question 12

Control environment

Answer 12

The attitude and actions of the board and management regarding the significance of control with in the organization

Question 13

Fraud awareness

Answer 13

Activities that help employees understand the purpose, requirements, and responsibilities of a fraud risk management program

Question 14

Reasonable assurance

Answer 14

A level of assurance that is supported by generally accepted auditing procedures and judgments

Question 15

Regulatory and legal misconduct

Answer 15

Includes conflicts of interest, insider trading, theft of computer trade secrets, anti-competitive practices, environmental violations, and trade and customs regulations in areas of import/export

Question 16

Impact

Answer 16

The severity of outcomes caused by risk events. Can be measured in financial, reputation, legal, or other types of outcomes

Question 17

Likelihood

Answer 17

The probability that a risk event will occur

Question 18

Risk tolerance

Answer 18

The acceptable level of risk size and variation relative to the achievement of objectives, which must align with the organization’s risk appetite

Question 19

Preventative control

Answer 19

An activity that is designed to deter unintended events from occurring

Question 20

Collusion

Answer 20

Ask involving two or more persons, working together, whereby establish controls or procedures may be circumvented for the gain of those individuals

Question 21

Detective control

Answer 21

An activity that is designed to discover undesirable events that have already occurred. A detective control must occur on a timely basis (before the on desirable event has a negative impact on the organization) to be considered effective

Question 22

Legal privileges

Answer 22

Working with legal counsel to protect the results of investigations, supporting working papers, and communications with counsel

Question 23

Fraud perpetrators

Answer 23

Generally fit one of two profiles: greater good oriented or scheming, self centered types

Question 24

Due professional care

Answer 24

Applying the care and skill expected of a reasonably prudent and competent internal auditor. Does not imply instability

Question 25

Professional skepticism

Answer 25

The state of mind in which internal auditors take nothing for granted; they continuously question what they hear and see and critically assess audit evidence

Question 26

Certified Fraud Examiners

Answer 26

Individuals certified as specialist and conducting forensic accounting investigations and advising on fraud risk and other fraud matters

Question 27

Corruption

Answer 27

Acts in which individuals wrongfully use their influence in a business transaction in order to procure some benefit for themselves or another person, contrary to their duty to their employer or the rights of another (for example, kickbacks, self-dealing, or conflicts of interest)