Chapter 5 Flashcards
(38 cards)
What is SAS 99?
Consideration of Fraud in a Financial Statement Audit (2002); identifies fraud as intentional acts causing material misstatement and requires brainstorming, risk evaluation, and assessment of fraud risk categories (type, significance, likelihood, pervasiveness).
What percentage of fraud cases are asset misappropriation, corruption, and financial statement fraud?
Asset misappropriation: 89% (median loss $120,000); Corruption: 48% (median loss $200,000); Financial statement fraud: 5% (median loss $766,000).
What is the most targeted asset in employee fraud?
Cash
What personality traits are linked to fraudulent behavior?
Failure experience, dislike of self/others, impulsivity, inability to delay gratification, lack of conscience, low intelligence, lower social class, ease of opportunity, high pressure, survival struggles.
What is predication in a fraud investigation?
The basis for launching a fraud investigation—examples: anonymous tips, victim/witness complaints, audit inquiries, conflicts of interest.
What are common cash/check misappropriation schemes?
Larceny, skimming, check swapping, check tampering, kiting, credit card refund/cancellation schemes.
What are examples of accounts receivable fraud?
Lapping, fictitious receivables, borrowing against receivables (factoring).
What are examples of inventory fraud?
Stealing inventory, short shipments charged at full price.
What are examples of accounts payable and fictitious disbursement fraud?
Double billing, shell companies, doctored sales, sham payments, price manipulations, money laundering, bid rigging.
How is embezzlement different from larceny?
Embezzlement involves lawful possession; larceny involves taking property without consent.
What’s the difference between larceny and skimming?
Larceny: funds are recorded on the books; Skimming: funds are not recorded.
What is lapping?
Concealing stolen cash by applying later customer payments; fails over time.
What is kiting?
Writing checks between accounts to inflate balances; reduced by Check 21.
What’s the difference between proactive and reactive fraud investigations?
Proactive: routine, no suspicion; Reactive: launched after suspicion or major loss.
What is the most powerful audit technique according to Joseph Wells?
Asking questions—diligent inquiry; ~80% of fraud is uncovered through tips.
What are key practices to prevent employee fraud?
Surprise audits, knowing employee roles, zero tolerance, fraud hotlines, observing lifestyle changes, rotating audit procedures.
How is fraud income treated for tax purposes?
Illegal income (e.g., fraud, embezzlement) is taxable in the year stolen unless repaid.
What are the forensic auditor’s main goals?
Find the fraud, determine how it was done, set up prevention systems.
Theft is similar to embezzlement
False
Accounts receivable is the favorite target of fraudsters
False
Most cases go to trial and pretrial activities can be a significant opportunity for a forensic accountant
False
Larceny is the taking of money or property lawfully in ones possession
False
Lapping is sometimes called “robbing peter to pay paul”
True
Write-offs to bad debt can conceal inventory thefts and kickback schemes
True
