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Chapter 18 - Internal Auditing and Public Sector Auditing

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Chapter 18 - Internal Auditing and Public Sector Auditing Powered By Docstoc
					                        Chapter 17

                            Fraud
                        Awareness
                          Auditing




Chapter     Learning
Overview   Objectives
                           Learning Objectives
           1. Differentiate among         3. Outline some of the
              frauds, errors,                conditions that lead to
              irregularities and illegal     frauds.
              acts that might occur in 4. Describe ways and
              an organization.               means to prevent
           2. Explain the auditing           frauds.
              standards related to        5. Explain the audit and
              external, internal, and        investigative procedures
              governmental auditors’         for detecting common
              responsibilities to detect     employee fraud
              and report frauds,             schemes.
              errors, irregularities, and
              illegal acts.
Chapter        Learning
Overview      Objectives                                          Slide 2
                        Learning Objectives
      6. Explain the audit and    8. Summarize how PAs
         investigative procedures    can assist in
         for detecting common        prosecuting fraud
         fraudulent financial        perpetrators.
         reporting.
      7. Explain the use of
         extended audit
         procedures for detecting
         fraud.




Chapter     Learning
Overview   Objectives                                    Slide 3
                               Introduction
           Financial statement auditors need to
           understand fraud and potential fraud situations,
           and they need to know how to ask the right
           kinds of questions during an audit.
                – Users of financial statements expect the auditors
                  will detect fraud; however, this is not the purpose
                  of a financial statement audit.
                – Most of the trained and experienced fraud
                  examiners come from government agencies such
                  as Canada Customs, CCRA, RCMP, OAG, the
                  Ministry of Justice, and various police
                  departments.
Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 4
             Definitions Related to Fraud
           Fraud consists of knowingly making material
           misrepresentations of fact, with the intent of
           inducing someone to believe the falsehood and
           act upon it and thus suffer a loss or damage.
                – Employee fraud: The use of fraudulent means to
                  take money or other property from an employer. It
                  usually involves falsifications of some kind.
                    • Three phases of employee fraud:
                         – fraudulent act,
                         – conversion of the money or property, and
                         – cover-up.

Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 5
            Definitions Related to Fraud
               – Embezzlement: A form of fraud involving
                 employees’ wrongfully taking money or property
                 entrusted to their care, custody, and control, often
                 accompanied by false accounting entries and
                 other forms of lying and cover-up.
               – Defalcation: The term used when someone in
                 charge of safekeeping the assets is doing the
                 stealing.
               – Management fraud: A deliberate fraud committed
                 by management that injures investors and
                 creditors through materially misleading financial
                 statements.
Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8   Slide 6
             Definitions Related to Fraud
           CICA Handbook, paragraphs 5135.02-03
             – Fraud and other irregularities refer to an intentional
               misstatement in financial statements, including an omission of
               amount or disclosure, or to a misstatement arising from theft
               of the entity’s assets. Fraud also involves:
                i. the use of deception such as manipulation, falsification, or
                     alteration of accounting records or documentation;
                ii. misrepresentation or intentional omission of events,
                     transactions, or other significant information; or
                iii. intentional misapplication of accounting principles relating
                     to amount, classification, or manner of presentation of
                     disclosure.



Chapter      Learning
Overview    Objectives
                          Learning objective 1 2   3   4   5   6   7   8     Slide 7
            Definitions Related to Fraud
           The Handbook definition:
               – Irregularities are intentional misstatements
                 or omissions.
               – Errors are unintentional misstatements or
                 omissions.
                        • In practice, the auditor will be concerned with a
                          suspected rather than a proven fraud. Intent is
                          difficult to prove.
               – Final determination of fraud is left to the
                 courts.
Chapter     Learning
Overview   Objectives
                              Learning objective 1 2   3   4   5   6   7   8   Slide 8
               Auditor’s and Investigators’
                    Responsibilities
           External auditors’ responsibilities under
           GAAS are:
                – The auditor should document fraud risk
                  factors identified as being present during
                  the assessment process, and document
                  the auditor’s response to any such factors.
                         • The auditor should assess inherent and control
                           risks so that the risk of undetected material
                           misstatement from fraud or error is
                           appropriately low.

Chapter      Learning
Overview    Objectives
                              Learning objective 1 2   3   4   5   6   7   8   Slide 9
                   Auditors’ Responsibilities
           In conducting the audit, the auditor must
           presume a risk of fraudulent revenue
           recognition.
                – The presumption is “rebuttable.” If
                  auditors can convince themselves that risk
                  is low, the presumption is rejected.
                         • Auditors must perform procedures and analysis
                           to determine that the risk is actually low.
                         • Fraud auditors may be used to assess this risk.


Chapter      Learning
Overview    Objectives
                              Learning objective 1 2   3   4   5   6   7   8   Slide 10
                          Illegal Acts by Clients
           The auditor must consider the consequences of
           illegal acts and the best way of disclosing such
           consequences.
                – Illegal acts may be difficult to detect due to:
                         • efforts made to conceal them, or
                         • questions about whether an act is actually illegal, which
                           must be determined in a court of law.
                – Auditors should inform management about the
                  limitations in detecting illegal acts in the
                  engagement letter.


Chapter      Learning
Overview    Objectives
                                Learning objective 1 2   3   4   5   6   7   8   Slide 11
           Auditing Accounting Estimates
           Numerous fraud cases have involved
           manipulation of estimates.
               – Management is responsible for making
                 accounting estimates, and auditors are
                 responsible for evaluating their
                 reasonableness.




Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8   Slide 12
                         Communication with Audit
                             Committees
           External auditors are required to report, among
           other items, fraud or other illegal acts to the
           audit committee.
                – Following the collapse of Enron, US standards in
                  respect to detecting fraud were significantly
                  increased.




Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 13
                         Fraud Warning Signs
           External auditors assess the risk of fraud
           by looking for warning signs.
                – The lack of awareness of the warning
                  signs of fraud is a frequently cited cause of
                  audit failure.
                – Client dishonesty is the most important
                  warning sign.
                – A 1996 study ranked warning signs from a
                  survey of 130 auditors.

Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 14
                          Auditors’ Ranking of
                         Fraud Warning Signals
           1. Managers have lied to the auditors or have been
              overly evasive in response to audit enquiries.
           2. The auditor’s experience with management
              indicates a degree of dishonesty.
           3. Management places undue emphasis on meeting
              earnings projections of the quantitative targets.
           4. Management has engaged in frequent disputes with
              auditors, particularly about aggressive application
              of accounting principles that increases earnings.
           5. The client has engaged in opinion shopping.
           6. Management's attitude toward financial reporting is
              unduly aggressive.

Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 15
                Auditors’ Ranking of Fraud
                     Warning Signals
           7. The client has a weak control environment.
           8. A substantial portion of management compensation
               depends on meeting quantified targets.
           9. Management displays significant disrespect for
               regulatory bodies.
           10. Management operating and financial decisions are
               dominated by a single person or a few persons
               acting in concert.
           11. Client managers display a hostile attitude toward
               the auditors.



Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 16
                Auditors’ Ranking of Fraud
                     Warning Signals
           12. Management displays a propensity to take undue
               risks.
           13. There are frequent and significant difficult-to-audit
               transactions.
           14. Key managers are considered highly
               unreasonable.
           15. The client’s management organization is
               decentralized without adequate monitoring.




Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 17
               Internal Auditors’ Responsibilities

           Internal auditors review the reliability and
           integrity of financial and operating information,
           review the systems established to ensure
           compliance, and review the means of
           safeguarding assets.
                – The internal auditor should have sufficient
                  knowledge to identify indicators of fraud, but is not
                  expected to have the expertise of a person whose
                  primary responsibility is detecting and
                  investigating fraud.


Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 18
                         Public Sector Auditors’
                            Responsibilities
           The requirements are to know the applicable
           laws, design the audit to detect abuse, and
           report to the proper level of authority.

                – Report should include all material instances of
                  non-compliance and all instances of illegal acts
                  that could result in criminal prosecution.




Chapter      Learning
Overview    Objectives
                          Learning objective 1 2   3   4   5   6   7   8   Slide 19
              Fraud Examiners’ Responsibilities

           Fraud examiners have the strongest spirit of
           fraud detection.
                – Assignments are begun with a reason to believe
                  that fraud may have occurred.
                – Fraud examiners “think like crooks.” They look
                  not for strengths of internal control systems, but
                  weaknesses and how to get around systems of
                  internal controls.
                – Fraud examiners have a lower threshold for
                  materiality, and think of materiality as a cumulative
                  amount, rather than an annual amount.

Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 20
                         Materiality and Fraud
           Auditors should inform the audit
           committee of all irregularities, except
           those that are clearly inconsequential.
                – Irregularities involving senior management
                  are never inconsequential.




Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 21
            Characteristics of Fraudsters
           Burglars and robbers average $400 - $500 per
           hit; fraudsters average $20,000, or up to
           $500,000 where computers are used.
                – White-collar criminals do not make themselves
                  obvious, although there may be telltale signs.
                – The largest frauds are committed by people who
                  hold high executive positions, have long tenure,
                  and are respected and trusted employees.




Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 22
             The Art of Fraud Awareness
                       Auditing
           Fraud examination work combines the
           expertise of auditors and criminal
           investigators.

               – Successes come from the following:
                        • experience,
                        • application of logic, and
                        • the ability to see things that are not obvious.



Chapter     Learning
Overview   Objectives
                              Learning objective 1 2   3   4   5   6   7   8   Slide 23
             The Art of Fraud Awareness
                       Auditing
       Financial Audit                               Fraud Examination
       Program / procedural approach                 Sensitivity to the
                                                     unusual
       Errors and omissions                          Exceptions, oddities,
                                                     patterns of conduct
       Assess control risk to design                 Think like a crook
       procedures
       Materiality one year at a time                Materiality over time
       Theories of financial accounting Behavioral motive,
       and auditing                     opportunity and integrity

Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8       Slide 24
             Conditions That Make Fraud
                Possible, Even Easy
           The probability of fraud is based on three
           factors:
                – motive,
                – opportunity, and
                – lack of integrity.

                – When these factors lean in the direction of
                  fraud, it almost certainly will occur.


Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 25
                                             Motive
           A motive is some kind of pressure
           experienced by a person and believed
           unshareable with friends and confidants.
                        •   Psychotic - habitual criminal
                        •   Egocentric - personal prestige
                        •   Ideological - a cause that is morally superior
                        •   Economic - money




Chapter     Learning
Overview   Objectives
                                Learning objective 1 2   3   4   5   6   7   8   Slide 26
                              Opportunity
           An opportunity is an open door for solving
           the unshareable problem in secret by
           violating a trust.
               – The violation may be the circumvention of
                 internal control policies and procedures.
               – Everyone has some degree of trust
                 conferred by a job. The higher the position
                 in the organization, the higher the trust.


Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8   Slide 27
                         Lack of Integrity
           Unimpeachable integrity is the ability to
           act in accordance with the highest moral
           and ethical values all the time.
                – Lapses in integrity may occur and be rationalized:
                   • I need it more than the other person.
                   • I’m borrowing the money and will pay it back.
                   • Nobody will get hurt.
                   • The company is big enough to afford it.
                   • A successful image is the name of the game.
                   • Everybody is doing it.
Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 28
                        Fraud Prevention
           Effective long-run prevention measures
           are complex and difficult.
               – they involve the elimination of the causes
                 of fraud by mitigating the effects of motive,
                 opportunity and lack of integrity.
               – A tightening of internal controls alone is, at
                 best, a short-run solution.



Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8   Slide 29
             Managing People Pressures
                 in the Workplace
           People will experience financial and other
           pressures.
                – These cannot be eliminated, but the facilities for
                  sharing them can be created.
                   • Ethics officers can be available to discuss
                     ethical dilemmas faced in the workplace.
                   • Hotlines can be used for anonymous reporting
                     of ethical problems.
                   • An effective long-run prevention is practicing
                     management by caring for people.


Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 30
                     Control Procedures and
                      Employee Monitoring
           Procedures for recognizing and explaining red flags
           are important for uncovering frauds early.
                – Controls should reveal symptoms of fraud cover-
                  ups:
                         •   missing documents,
                         •   second endorsements on cheques,
                         •   unusual endorsements,
                         •   unexplained adjustments to inventory balances,
                         •   unexplained adjustments to accounts receivables,
                         •   odd items on the bank reconciliation,
                         •   old outstanding cheques,
                         •   customer complaints, or
                         •   unusual patterns of deposits in transit.
Chapter      Learning
Overview    Objectives
                                 Learning objective 1 2   3   4   5   6   7   8   Slide 31
                   Integrity by Example and
                         Enforcement
           The key to integrity is accountability -- each person
           must be willing to put his/her decisions in the sunshine.
                – Many organizations begin by publishing codes of conduct.
                   • Can be effective if the “tone at the top” supports it.
                – Background checks on prospective employees are
                  advisable.
                – Fraudsters should be fired and prosecuted.
                   • There is a high rate of recidivism in fraudsters if there
                     has not been prosecution.




Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 32
               Fraud Detection: Red Flags
               Observation of a person’s habits and lifestyle may
               reveal some red flags.

                           Fraudster characteristics:
           – lose sleep                               – become irritable easily
           – take drugs                               – get defensive,
           – can’t relax                                argumentative
           – can’t look people in                     – sweat excessively
             the eye                                  – find excuses or
           – work standing up                           scapegoats for
                                                        mistakes
           – drink too much
                                                      – work alone, work late
Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8     Slide 33
                          Fraud Detection:
                         Hints of a Cover-up
     • Exceptions and                                  – inventory shortage
       oddities to note:                               – alterations of documents
           – missing documents                         – duplicate payments
           – cash shortages and                        – employees who cannot
             overages                                    be found
           – excessive voids and                       – second endorsements
             credit memos                                on cheques
           – customer complaints                       – documents being
                                                         photocopied
           – common names and
             addresses for refunds                     – dormant accounts
                                                         becoming active
           – GL does not balance

Chapter      Learning
Overview    Objectives
                          Learning objective 1 2   3   4   5   6   7   8      Slide 34
                         Fraudulent Financial
                              Reporting
           Fraud often arises from the perceived
           need to “get through a difficult period.”

                – Managers feel that the conditions are
                  temporary.

                – In the meantime, falsified financial
                  statements are used to “benefit the
                  company.”

Chapter      Learning
Overview    Objectives
                          Learning objective 1 2   3   4   5   6   7   8   Slide 35
                         Fraudulent Financial
                              Reporting
                 Conditions that should be considered:
           – unfavourable industry                     – lack of working capital
             conditions                                – rapid expansion
           – excess capacity                           – product obsolescence
           – high debt                                 – slow customer
           – profit squeeze                              collections
           – strong foreign                            – related party
             competition                                 transactions




Chapter      Learning
Overview    Objectives
                          Learning objective 1 2   3   4   5   6   7   8     Slide 36
                         Fraudulent Financial
                              Reporting
           Both fraud and creative accounting have
           caused financial statements to be materially
           misleading by:
                – overstating revenues and assets,
                – understating expenses and liabilities, and
                – giving disclosures that are misleading or that omit
                  important information.
           Generally, fraudulent financial statements show
           better financial performance and ratios than the
           actual financial statements warrant.

Chapter      Learning
Overview    Objectives
                          Learning objective 1 2   3   4   5   6   7   8   Slide 37
                         Fraudulent Financial
                              Reporting
           Signs and signals for the potential for illegal
           acts:
                –   unauthorized transactions,
                –   government investigations,
                –   regulatory reports of violations,
                –   payments to consultants, affiliates, or employees
                    for unspecified services,
                –   excessive sales commissions and agent’s fees,
                –   unusually large cash payments,
                –   unexplained payment to government officials, or
                –   failure to file tax returns, pay duties and fees.
Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 38
                                 Internal Control
           A 2004 study indicates that 40% of frauds are
           detected by tips from employees.
                – Whistle-blowing policies are an important control
                  in detecting fraud.
                – 30% of frauds were detected by internal audit,
                  18% by other internal controls.
                         • Internal controls are useful in detecting frauds as well as
                           preventing them.
                – 18% of frauds were detected by the external audit,
                  and 21% were detected by accident.


Chapter      Learning
Overview    Objectives
                                Learning objective 1 2   3   4   5   6   7   8    Slide 39
                        Schemes and Detection
                             Procedures
           •         Focus on fraud possibilities.
                   –        Most preventative controls can be beaten by a
                            motivated thief.
                   –        Management steps such as reengineering,
                            downsizing, outsourcing, computerization, and
                            globalization affect the reliability of controls, as
                            well as the attitudes of those who have access
                            to the assets.
           •         Know the symptoms.
           •         Design controls and audit procedures to
                     detect fraud symptoms.
           •         Follow through on all symptoms observed.
Chapter         Learning
Overview       Objectives
                                  Learning objective 1 2   3   4   5   6   7   8   Slide 40
             Some Newer Approaches to
                 Fraud Detection
           SSA audits have been promoted as a means of
           increasing the auditor’s effectiveness in
           detecting fraud.
                – The extensive analytical procedures and
                  consideration of risks should improve the auditor’s
                  ability to detect anomalies.


           Another recent development is the use of
           Benford’s Law to uncover suspicious patterns
           of payments.

Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 41
                          Fraud Casettes
           17.1 Case of the Missing Petty Cash:
                – Petty cash embezzlement.


           17.2 The Laundry Money Skim:
                – Stolen cash receipts skimmed from collection.
                – Albert owned and operated 40 coin laundries
                  around town. As the business grew, he could no
                  longer visit each one, empty the cash boxes, and
                  deposit the receipts. Each location grossed about
                  $140 to $160 per day, operating 365 days per
                  year. (Gross income about $2 million per year.)
Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 42
                         Fraud Casettes
           17.3 The Well-Padded Payroll:
               – Embezzlement with fictitious people on the
                 payroll.

           17.4 False Sales, Accounts Receivable,
           and Inventory:
               – Overstated sales and accounts receivable
                 caused overstated net income, retained
                 earnings, current assets, working capital,
                 and total assets.
Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8   Slide 43
                         Fraud Casettes
           17.5 Overstate the Inventory,
           Understate the Cost of Goods Sold:
               – Overstated inventory caused understated
                 cost of goods sold, overstated net income
                 and retained earnings, and overstated
                 current assets, working capital and total
                 assets.




Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8   Slide 44
                  Documents, Sources and
                   “Extended Procedures”
           Common documents:
               – Novice auditors should have an understanding of
                 the features of some common documents.
               – Information on a cheque:
                   • The front of the cheque will be encoded with
                     the amount paid.
                   • The reverse of the cheque will bear
                     endorsements and dates and locations of
                     financial institutions involved in processing the
                     payment.
               – Information on a bank statement:
                   • Most information is self-explanatory, do not
                     overlook the usefulness of that information.
Chapter     Learning
Overview   Objectives
                        Learning objective 1 2   3   4   5   6   7   8   Slide 45
                   Documents, Sources and
                    “Extended Procedures”
           Social insurance numbers (SINs) have become
           a universal identification number. They can be
           useful to auditors checking the personnel files
           and the validity of people on the payroll.
                – The SIN is a nine-digit number.
                   • first digit - province or territory
                   • middle seven digits - generally ascending order
                   • last digit - check digit calculated using first 8
                     digits


Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 46
                         Sources of Information
           A wide variety of records and information is available
           for various kinds of investigations ranging from
           personal background checks to business enquiries.
               – General business sources:
                   • City and county assessors, regulatory
                     agencies, provincial agencies and
                     departments, better business bureaus,
                     Standard & Poors listings, etc.
               – Business and asset identification sources
                   • business registries, Uniform Commercial code
                     records.

Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 47
                         Sources of Information
           Federal and Provincial Revenue Agencies:
                – How do revenue agents find tax evaders?
                   • Police arrest records, real estate records, auto
                     registrations, comparison of sales tax returns
                     and income tax returns, newspaper rental ads.




Chapter      Learning
Overview    Objectives
                           Learning objective 1 2   3   4   5   6   7   8   Slide 48
                        Extended Procedures
      – Count the petty cash                       – Match payroll to life and
        twice a day.                                 medical insurance
      – Investigate suppliers                        deductions.
        (vendors).                                 – Match payroll to social
      – Investigate customers.                       insurance numbers.
      – Examine endorsements                       – Match payroll with
        on cancelled cheques.                        addresses.
      – Add up the accounts                        – Retrieve customers’
        receivable subsidiary.                       cheques.
      – Audit general journal                      – Use marked coins and
        entries.                                     currency.

Chapter     Learning
Overview   Objectives
                          Learning objective 1 2   3   4   5   6   7   8    Slide 49
                        Extended Procedures
               –   Measure deposit log time.
               –   Document examination.
               –   Enquire, ask questions.
               –   Covert surveillance.
               –   Horizontal and vertical analyses.
               –   Net worth analysis.
               –   Expenditure analysis.
               –   Valuation services.




Chapter     Learning
Overview   Objectives
                          Learning objective 1 2   3   4   5   6   7   8   Slide 50
                  After Discovering a Fraud
           Building a case against a fraudster is a task for
           trained investigators.
                – CICA external audit standards for reporting fraud:
                    • Irregularities should be reported to the audit
                      committee.
                    • Little responsibility to report clients’ illegal
                      activities to outside agencies.
                – Internal Audit Standards:
                    • Internal auditors are required to inform
                      management of suspected wrongdoing.

Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 51
                         Consulting and Auditing
           While engaged in audit work, auditors should
           know how to preserve the chain of custody of
           evidence.
                – The CICA now offers a specialized certificate for
                  investigative and forensic accounting.


           PAs may accept engagements for litigation
           support and expert witnessing.
                – Can take several forms, usually amounts to
                  consulting in the capacity of documenting cases
                  and determining damages.
Chapter      Learning
Overview    Objectives
                            Learning objective 1 2   3   4   5   6   7   8   Slide 52
                       Fraud Audits as
                   Assurance Engagements
           Many fraud audits would appear to be of the
           direct reporting type of assurance engagement.
                – The only current authoritative guide on fraud audit
                  reports is found in the Association of Certified
                  Fraud Examiners Fraud Examiners’ Manual.
                   • Exhibit 17-4: A “clean” opinion on a fraud audit
                     is similar to a “nothing came to our attention”
                     type of opinion suggesting moderate
                     assurance.
                   • Exhibit 17-5: An adverse opinion indicates a
                     higher assurance that a fraud has occurred.
                         – Determination of fraud is a matter for the courts.
Chapter      Learning
Overview    Objectives
                            Learning objective 1 2   3   4   5   6   7   8      Slide 53
              Bribery and Corruption:
           A New Global Social Concern
           Vast sums of money have been misallocated by
           public officials from schools and hospitals into
           projects with negligible value where officials
           receive kickbacks.
                – Corruption is a major challenge in the new global,
                  high-tech economy.
                – Corruption is the enemy of progress -- opposing
                  efforts to open government, curbing personal
                  freedoms and abusing human rights.



Chapter      Learning
Overview    Objectives
                         Learning objective 1 2   3   4   5   6   7   8   Slide 54

				
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