Term
| Timeline of detecting fraud in audits |
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Definition
Before 2002 - the AICPA's position was that auditors should follow up when they suspect fraud BUT that otherwise did not need to be designed to detect fraud.
2002 - AICPA SAS 99 set forth standards requiring auditors to provide reasonable assurance that material fraud WILL be detected.
Since then - SOX and PCAOB have reinforced this responsibility
movement towards auditors being more proactive |
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Term
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Definition
1) F.S. (reporting) Fraud - when financial or other performance-related assertions are knowingly misstated. Attempt to mislead the public.
2. Embezzlement (defalcation) - misappropriation of assets - categorization - |
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Term
| Common characteristic of the 2 types of fraud: |
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Definition
| INTENT - honest mistakes and errant judgement calls are not fraudulent (intent is hard to prove) |
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Term
| How companies usually commit "fraud" |
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Definition
| Rarely come across straight - overt - willful fraud. Companies usually engage in earnings management - by bending the rules on judgment calls and estimates - just a reporting abuse.. not necessarily fraud.. OR IS IT?! ha |
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Term
| Audit team should brainstorm about fraud risk BY.. |
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Definition
| putting themselves in the role of executives and employees and seeing how they would commit fraud. Ask such questions as: what is the tone at the top? what are the incentives, opportunities, controls? |
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Term
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Definition
| The triangle is needed for Fraud.. Motive>Opportunity>Rationalization |
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Term
| What is the most useful tool to discover fraud? |
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Definition
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Term
| Interviewing successfully: |
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Definition
| Examiner must be a skilled interviewer (which is hard now that technology is so prevalent and interpersonal skills have decreased). The ability to effectively structure, sequence and ask questions is critical to uncovering fraud. |
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Term
| How to know if someone is lying? |
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Definition
1. They repeat questions and seek obvious clarifications.
2. Avoid direct answers that might be incriminating
3. Provide excessive detail because they know that the more detail the more believable their story is
4. Feign great concern
5. Attack the questioner
6. Also use a lot of qualifiers |
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Term
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Definition
| Basically, sort of, well.., I believe that.., to be perfectly honest with you, honestly speaking, to the best of my knowledge, im glad you asked me that question! |
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Term
| Non-verbal cues of deception: |
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Definition
1. Pauses
2. Grooming and scratching gestures
3. Using hands to cover mouth or face
4. Backward movements
5. Clearing throat/swallowing/coughing
6. Excessive emotion/passionate responses - if innocent, may become increasingly forceful though |
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Term
| Myths that DO NOT detect lying: |
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Definition
1. Eye Contact
2. Blinking
3. Blushing |
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Term
| 5 types of Questions from Video |
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Definition
1. Introductory - Allow observation, establish format, test reconection
2. Informational - open ended, require more than y/n, leading
3. Assesment - hypothetical situations "who could have done this"
4. Closing - conclude interview, confirm info, obtain add. info, conclude positively
5. Admission seeking - logical progression, obtain a valid verbal confession then a written statement and assessment both required if giving. |
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