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ACCT 425 > Lec 13 > Flashcards

Lec 13 Flashcards

1
Q

what degree of complicance is normally required

A

around 90 percent

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2
Q

what is teh exception to the degree of complainace percentage

A

it controls, since they are not human ran, 100% is required

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3
Q

what is the enforced vacation control and how is it preventative and detective

A

the company forces the manager to take vacation days and does not let them compound to next year
detective - it allows the person temprorily filling in to detect fraud
preventative - manager knows a person is filling in thus is deterred from fraud

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4
Q

how do the stock exchanges effect board of directors

A

they force company to have better ic through having a board AND more importantly an udit commitee
excahnge requires committee to be fully independent and composed of financial experts

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5
Q

what are the two causes of mistttemtns

A

fraud and error

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6
Q

what are the two types of fraud

A

missapropriation of assets and financial reporting fraud

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7
Q

what is the CAS 240 requirement hen it comes to auditors and misstattmens

A

auditors are required to discover misstatments and provide reasonable assurancec taht statments are free from misstatments whether due to fraud or error. this is done through obtaining sufficeint evidence

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8
Q

who is the injured part in misappropriation of assets

A

injured party is the company itself

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9
Q

what are some examples of asset missapropriation

A
  • stealing cash, inv, a/r
  • kickback (officer pick worse supplier because they give some sort of monetary compensation
  • padding of expense account - uses expense account for innapropraite purposes
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10
Q

who is the injured part is fianncial reporting fraud

A

the final users; investors creditors etc

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11
Q

what is another name for asset missapororaition and f/r fraud

A

employee fraud and management fraud

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12
Q

what are some ways that fraud is commmited

A
  • deception (manipulation, falsifiation)
  • misrepresentation of events/transactions
  • intnetional missaplication of accoutning standards
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13
Q

what is missaplication of accounting principles and is it a red flag

A

companies are expected to use most apprpriate form of IFRS, which is what the rest of the specifc industry is using. if not being used must give reason as to why, otherwise it is red flag

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14
Q

as per cas 240, should previous experineces with managemetn integrity be taken into consideration in the current year audit?

A

no, cas 240 states that notwithstanding past experinces with management, and they must be reassessed every year. this is part of professional scepticism

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15
Q

what is primary reposnsibility of audit commitee

A

oversee financial reporting and i/c, and somtimes investigate f/r issues

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16
Q

what is the issue of managemetn creating the internal controls

A

since they created, they are capable of overriding them

17
Q

is overrding i/c an issue, and what is a sign that it is

A

not neccessarily, but you should look out for big dollar amount entries AT year end of right after year end

18
Q

what is coso and its bitch ass study

A

coso helps companies implement better internal controls. the study is done based on this

19
Q

what did aol do

A

send packages to customers without them asking and recorded revenue. issue in existence

20
Q

what did enron do

A

set up SPE that in which it put all it liabilities. they were set up in a way where they did not have to consolidate. issue in completeness

21
Q

three reasons fraud is difficult to detect for auditor

A
  • knowledge of i/c is inferior to that of client employees
  • fraud is intentiaonally conscealed
  • management have ability to override i/c
22
Q

what should the auditor be loking for as risky areas

A
  • dicreptencies in accoutnign records
  • confilcting or missing evidence
  • problematic or unusual relationship between auditor and managemtn
  • policies adheereing to industry norms
23
Q

what is the audtors job in regards to management made estimates and give a real world example

A

auditors are responsible for evaluatiing the reasonbaleness of the estimates.
examples is nortel and their dit assets which they did not expect to get back

24
Q

fraud risk factors should be documented. where should these risk facors be generated and what is this process contaon

A

made in fraud brainstorming sessions. fraud risks of client are disscussed by the entire team from partner to intern

25
Q

what is the most impacted accouting principle of fraud

A

revenue recorgnition

26
Q

what is professional scepticism for revenue recognition

A

this is the only account where the auditor is to assume that fraud exists

27
Q

what can be done to confirm revenue recognition disbelief

A

only way this presumption is rebbutable is if auditors can gather evidence to convince that risk is low

28
Q

what are auditor responsibilities when fraud is deteced

A
  • conduct more procedures to confirm or dispel
  • inform appropriate level of management
  • inform audit committe (no for inconsequential fraud)
  • inform audit committee always for management fraud EVEN IF it is immaterial and inconsequential
29
Q

what does cas 250 say

A

managemtn should ensure the company’s operations are conducted in such a way that adherees to laws and regulations

30
Q

what is in the fraud risk triangle

A
  • inscentive/presure/motivation
  • opportunity
  • attitude/rationalization
31
Q

what are ways in which ethical dilemas can be shared confidentialy

A
  • ethics officers who are available to talk about them
  • whistle blower hotline
32
Q

aspects to note when trying to detect fraud

A
  • missing documents
  • asset shortages and overages
  • duplicate payments
  • common names and adresses for returns and payments
  • dormant accounts sudednly reactivating
  • photocopied documents
33
Q

conditions that lead to fraud

A
  • unfavorable industry conditions
  • high debt
  • profit squaeeve
  • strong competittion
  • rapid expansion
  • product obselesnces
  • slow part collections

ACCT 425 (21 decks)

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