Term
| What are 3 ways to detect fraud? |
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Definition
| Chance, Tips/Complaints, Proactive Auditing |
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Term
| What are the 3 parts of proactive auditing, and what does each of these parts contain? |
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Definition
3 parts:
1) accounting anomalies (source documents, faulty entries, ledger inaccuracies)
2) analytical anomalies (financial statements, ratios)
3) IC Weaknesses |
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Term
| What does detection depend upon? |
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Definition
| Existence of red flags, skill in recognizing red flags, knowledge of what to do next, willingness to do it |
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Term
| What are 2 forms of "proactive" fraud detection? |
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Definition
| Deductive (Laser) Methods and Inductive (Shotgun) methods |
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Term
| What do deductive (laser) methods entail? |
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Definition
| Understandin specific business, types of fraud that could occur, and searching for specific symptoms, deductive is general to specific (theory, hypothesis ,then gather info. to support it) |
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Term
| What do inductive (shotgun) methods entail? |
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Definition
| Data mining and digital analysis, large databases and search for anomalies, Benford's law, look for specific things that are unusual then look for a general theory |
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Term
| What kind of indicators are background checks? |
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Definition
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Term
| What is the definition of analytical procedures? |
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Definition
| The study or comparison of relationships among financial and nonfinancial data to assess reasonableness |
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Term
| What are 3 ways to perform financial statement analysis? |
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Definition
| Trend analysis, Common size statements (vertical and horizontal analysis), and ratio analysis |
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Term
| What should the relationship be between operating cash flows (OCF) and NI? |
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Definition
| They should remain fairly stable |
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Term
| What should the relationship be between COGS and Sales, OCF and Sales? |
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Definition
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Term
| What should be the relationship between A/R, Inventory, and Sales? |
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Definition
| A/R and inventory should parallel sales |
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Term
| What should the relationship be between A/P, COGS, and Inv? |
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Definition
| A/P and COGS should parallel Inv |
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Term
| What should the relationship be between Acc. Depr. and fixed assets? |
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Definition
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Term
| What should the relationship be between Allowance for Bad Debts and A/R? |
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Definition
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Term
| What should the relationship be between Sales, Prepaid Exp. and SG&A? |
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Definition
| Sales and prepaid expenses should parallel SG&A |
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Term
| What is the difference between time series analysis and cross series analysis? |
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Definition
Time series: within the company
Cross series: comparing to other companies |
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Term
| How do you calculate the days sales in receivables index? |
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Definition
| [AR(Year 1)/Sales(Year 1)]/[AR(Year 0)/Sales (Year 0)] |
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