Case Study: Financial Audit
Since the treasurer diverted a substantial amount of the fund’s earnings to his personal use and systematically underreported income earned, we could consider this as a financial reporting fraud. The auditor would have identified the risk primarily through analysis of financial results and review of operational procedures. B) The auditor should pay close attention to the changes of company’s financial result and analyze those changes in time to see if they are reasonable.
Most auditors would have detected this kind of material misstatement in company’s financial results, because this defalcation is caused by a personal factor. C) We should forecast its audit procedure in order to eliminate the risks in audit progress. Thus, control procedure would have been effective In preventing or detecting the defalcation could have been a separation of duties.
2. A) Since the purchasing agent usually set up wrong purchase orders to factious vendors, we could consider this as an asset misappropriation.
The auditor would have identified the risk primarily through review of operational procedure. ) Firstly, we should understand the business and Identify what kind of risk the company will face, which operational area should be improved. Then, we should definitely plan an audit to try to find out the fraud. However, the defalcation will be difficult to be found by most auditors In this case.
Because the fictitious vender sale Is only a small of portion (1%) of the annual sales. C) In this case, the company should have an analytical procedure, which is related to company’s operational data.
The auditor could try to find out the misstatement from not only the financial results, but also the legislations between financial results and operational records and data. 3. A) In this case, the social services workers of a state agency set up factious files for welfare recipients in order to collect monthly supports, and this is an asset misappropriation. The auditor would have identified the risk primarily through review of operational procedures.
B) The company should Identify what kind of fraud they will face and the potential risks they will have.
Otherwise, the audit is necessary to be planned because this defalcation is caused by personal factor. C) Most of the mime. A separation of duties would have been effective In preventing or detecting the defalcation. Otherwise, we should develop a new audit procedure to detect the perpetrate fraud, such as forming a new organizational structure, establishing a more complex financial instruments. 4.
A) Since the purchasing agent receive perks and kickbacks from vendors. Therefore, this is a corruption of fraud. The auditor would have Identified the risk primarily through review of industry trends. ) The company should obtain useful and Instant information to detect the fraud risks. Meanwhile, the purchasing department should also check the purchasing Information from all vendors more often in order to find out doubtful points.
If the auditors could find enough information, they could prevent the defalcation. C) The company should establish an analytical procedure to prevent ten toleration. I en auditor snouts not only pay attention to company’s financial results, but also take charge in the relationship between company’s internal data and the market data.
If there is any higher-than- market purchase exists, it is necessary to check if it is fraud or not. .
A) In this case, the supervisor and the payroll clerk colluded to add an extra person to the payroll. Thus, we could consider this as an asset misappropriation. The auditor would have identified the risk primarily through review of operational procedures. B) Since this fraud is also associated with the management in this case. Therefore, communication with management or full broad would be necessary and useful to find the fraud evidence if the fraud is material.
Most auditors should have detected this defalcation as long as they pay more attention on controlling the managerial reoccurred.
C) As I mentioned above, this defalcation was colluded by the supervisor and the payroll clerk. Therefore, the company should have preparation to meet this kind of scenario, which means alternative managements are essential to cover up this fraud. Separation of duties would have been effective in preventing or detecting the defalcation. 6. A) Since the fraud is manipulated by the branch manager through transferring amounts from dormant accounts to a factious account in order to withdraw this money eventually.
This is a corruption and the auditor would have identified the risk armorial through review of operational procedures.
B) We should plan an adjusted audit procedure to ensure the audit adequately identify the fraud and collect enough evidence, which are specifically related to the potential risks. At the same time, we should also examine the monthly finding. If there’s doubtful point exist, we should plan an audit in time. As long as theses processes are done, most auditors should have detected the defalcation. C) From this case, we could see it is important to keep skepticism of the management.
The greater the skepticism, it will be much easier for auditors to find out the potential risks of the management, and collect the persuasive evidence.
Otherwise, we should also enhance the input control by separating duties or creating an electronic audit tail. 7. A) Since the mistake is made by the accounts receivable bookkeeper by misstating the accounts receivable totals or writing off unconvertible payments. We could consider this as asset misappropriation. The auditor would have identified the risk primarily through review of operational procedures.
B) We should identify the specific fraud risks depending on their potential magnitude.
Meanwhile, we should also adjust the audit procedure to ensure we could collect enough and useful evidence, which are specifically related to the potential risks. A separation of duties is also necessary during the whole procedure. Once these processes are done, the auditors should have detected the defalcations. C) Journal entries are essential to reflect every business transactions.
However, there are many defalcation are not covered up by supportive Journal entries. Therefore, we should strength the control procedures of recording and managing company’s Journal entries.