Case Study 1_Richard Cotton

Subject: Accounting Information System ETHICS, FRAUD, AND INTERNAL CONTROL Stated Problem: EXPENSE ACCOUNT FRAUD While auditing the financial statements of Petty Cor-poration, the certified public accounting firm of TrueBlue and Smith discovered that its client’s legal expenses account was abnormally high. Further investigation of the records indicated the following:•Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.•Swindle, Fox, and Kreip were not Petty Corporation's attorneys. A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk. Boghas’s other duties included performing the end-of-month bank reconciliation. Subsequent investigation revealed that Swindle,Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.…

6. Access a recently issued SEC Accounting and Auditing Enforcement Release related to a fraud action (www.sec.gov). Click on enforcement and determine incentive(s)/pressure to commit the fraud, accounting issue(s), and the motive for the fraud. " Access the Accociation of C

Causation and Impacts of Major Fraud The videos from this week provide information about 2 major frauds: The Types of Problems that Can Occur in Financial Statements. Classic cases: WorldComLinks to an external site. (4m 28s). The Motivations Behind Earnings Management. Classic Cases: EnronLinks to an external site. (4m 57s). Respond to the following in a discussion post: Assess the impact these cases had on the corporations' investors and creditors. Explain the risk factors involved, the elements of the fraud, and competing analyses of the causes of the fraud. Provide support for your rationale. Be sure to respond to at least one of your classmates' posts.

Chapter 3 of the textbook discusses many methods individuals can use to communicate financial statement information to stakeholders in a fraudulent manner. Choose one method and explain how perpetrators use it. Which of the three “M’s of financial reporting fraud does this method fall under? Cite a case related to the method.

6. Access a recently issued SEC Accounting and Auditing Enforcement Release related to a fraud action (www.sec.gov). Click on enforcement and determine incentive(s)/pressure to commit the fraud, accounting issue(s), and the motive for the fraud.

Match each of the numbered descriptions 1 through 7 with the term or phrase it best reflects. Indicate your answer by writing the letter A through G for the term or phrase in the blank provided. A. Ethics. B. Fraud triangleC. Prevention.

How can fraud be prevented in the making use of accounting information systems? How do ethics and internal control play key roles in reporting misstated financial statements? (Accounting Information System Tenth Edition by James Hall chapter 3)

You read that there is no generally accepted definition of ‘earnings management’.  Using your accounting knowledge, your own research and textbook reading to define, describe, and analyze: When will earnings management be acceptable? When will earnings management become a fraud?  Fraudulent earnings management is often identified by two adjectives. What are the two adjectives?  How should each of the two adjectives be defined in the context of this week’s lessons on ‘financial reporting fraud’? Include a biblical application in your analysis.

Ans

Identify one (1) real-life ‘financial reporting accounting fraud’ that occurred post 1990 (i.e. in the last 30 years), in any country, and answer the following questions: a) Discuss what specific accounting regulations were violated?