AIS
making choices and guiding their behavior in situations that involve the concepts of right and wrong.
Ethics
made by one party to another with the intent to deceive and cause the other party to reasonably rely on the fact to his or her detriment.
Fraud
are derived from societal mores and deep-rooted personal beliefs about issues of right and wrong
that are not universally agreed upon.
Ethical Standards
According to common law, a fraudulent act must meet the following five conditions:
False Representation, Material Fact, Intent, Justifiable Reliance, Injury or Loss
Auditors encounter fraud at two levels:
Employee Fraud, Management Fraud
fraud by nonmanagement employees, is generally designed to directly convert cash or other assets to the employee’s personal benefit.
Employee Fraud
more insidious than employee fraud because it often escapes detection until the
organization has suffered irreparable damage or loss.
Management Fraud
Factors that Contribute to Fraud:
Situational Pressures, Opportunities, Personal Characteristics
Three Broad Categories of Fraud Schemes
Fraudulent Statement, Corruption, Asset Misappropriation
The most common form of fraud scheme.
Asset Misappropriation
Involves an executive, manager, or employee of the organization in collusion with an outsider.
Corruption
Associated with management fraud.
Fraudulent Statements
Computer Fraud Schemes
Program Fraud, Operation Fraud, Database Management Fraud, Scavenging, Eavesdropping
creating illegal programs that can access data files to alter,
delete, or insert values into accounting records
Program Fraud
the misuse or theft of the firm’s computer resources.
Operation Fraud
- includes altering, deleting, corrupting, destroying, or stealing an organization’s
data
Database Management Fraud
searching through the trash of the computer center for discarded output.
Scavenging
involves listening to output transmissions over telecommunications lines.
Eavesdropping
is a law the U.S. Congress passed on July 30 of that year to help protect investors from
fraudulent financial reporting by corporations.
Sarbanes Oxley Act of 2002
Requires that corporate management certify that they have reviewed the financial
statements.
Sec 302
disclosure about any relevant off-
balance sheet obligations that may exist.
Sec 401
the company’s internal control
procedures are adequate and effective.
Sec 404
a company’s
code of ethics should apply equally to all employees.
Sec 406
update the public of significant financial matters when they happen, rather than wait until the quarterly or annual report
Sec 409
imposes penalties for violations of the SOX rules, which can include fines or even jail time.
Sec 802
accounting and auditing processes used in a company's finance department that ensure the
integrity of financial reporting and regulatory compliance.
Internal Control
Exposures and Risk
Destruction of asset, Thelf of asset, Corruption of information, Disruption of the Information System
passive techniques designed to reduce the frequency of occurrence of undesirable
events.
Preventive Control
these are devices, techniques, and procedures designed to identify and expose
undesirable events that elude preventive controls.
Detective Control
actions taken to reverse the effects of errors.
Corrective Control
based on a credit relationship between the trading parties.
Expenditure Cycle
From system perspective, this transaction has two parts:
Physical Components, Financial Components
special journal used to records all types of purchases made on account
Purchase Journal
represent a general journal entry
Journal Voucher
list of outstanding a/p organized by payment due date
Open Accounts Payable File
suppliers’ account set up to recognize liability after performing the 3-way
matching
Accounts Payable Sub-Ledger
document containing financial information
Supplier Invoice
same record from the revenue cycle
Inventory Sub-Ledger
list of open p.o for AP creation awaiting the receiving report
Accounts Payable Pending File
document prepared upon receipt and physical inspection of goods ordered
Receiving Report
a listing of the company’s vendors/suppliers
Valid Vendor File
listing of processed purchased order, updated for received/served orders
Open Close P.O File
formal document sent to the supplier detailing the items being ordered
Purchase Order
internal document that initiates the purchase process
Purchase Requisition
Primary Objectives of Cash Disbursement
Avoid early payments, Avoid Late Payments