Concept explainers
a.
Introduction: Fraud refers to an intended attempt to misrepresent the financial statement of an entity in order to attain some personal gain or advantage.
To explain: The management commits of fraud.
b.
Introduction: Fraud refers to an intended attempt to misrepresent the financial statement of an entity in order to attain some personal gain or advantage.
To explain: The management’s incentive to commit the fraud.
c.
Introduction: Asset misappropriation fraud refers to the fraud where third-parties or workers of the entity misuse their position for pilfering or exploitation the assets of the organization. It includes embezzlement of cash, assets stolen, and various other related losses.
Fraudulent financial reporting refers to manipulations of income earned by the management in order to have personal gains or to prevent an organization from bankruptcy or any other negative financial results.
To state: The case is related to asset misappropriation or fraudulent financial reporting.
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Chapter 2 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
- Refer to Exhibit 2.1 a. What is a Ponzi scheme? b. Describe the key elements of the Bernie Madoff fraud. c. Is this fraud primarily a case of asset misappropriation or fraudulent financial reporting?arrow_forwardWhat advantages would motivate management to conduct fraud related to financial capital processes?arrow_forwardHow is net worth analysis used to prove fraud?arrow_forward
- What is the usefulness of using the Fraud Triangle to evaluate the risk of major misstatements in financial reporting?arrow_forwardHow can fraud be detected in the financial statements?arrow_forwardWhich of the following factors creates an opportunity for fraud to be committed in an organization? a. Management demands financial success. b. Poor internal control. c. Commitments tied to debt covenants. d. Management is aggressive in its application of accounting rules.arrow_forward
- Fraud risk factors are events or conditions that indicateI. An incentive or pressure to perpetrate fraud.II. An opportunity to carry out the fraud.III. An attitude or rationalization that justifies the fraudulent action.Which of the following statements is true?a. I is a fraud risk factor.b. I and II are fraud risk factors.c. II and III are fraud risk factors.d. None of these is a fraud risk factor.e. I, II, and III are fraud risk factors.arrow_forwardOne of the typical characteristics of management fraud isa. Falsification of documents in order to misappropriate funds from an employer.b. Victimization of investors through the use of materially misleading financialstatements.c. Illegal acts committed by management to evade laws and regulations.d. Conversion of stolen inventory to cash deposited in a falsified bank account.arrow_forward21) Which is not one of the fraud factors in the Fraud Pentagon? A. Incentive B. Pressure C. Opportunity D. Employee disenfranchisementarrow_forward
- Explain the three special characteristics of management fraud: a. The fraud is perpetrated at levels of management above the one to which internal control structures generally relate. b. The fraud frequently involves using the financial statements to create an illusion that an entity is healthier and more prosperous than, in fact, it is. c. If the fraud involves misappropriation of assets, it frequently is shrouded in a maze of complex business transactions, often involving related third parties. Please provide me a correct and clear explanations. Thank you!arrow_forwardIf a company reported fi ctitious revenue, it could try to cover up its fraud by: A . decreasing assets.arrow_forwardWhat is a good response to.... Embezzlement is a type of fraud that happens when someone within an organization misuses their position of trust to steal money. This breach of trust is an intentional form of deceit to misappropriately utilize these funds for their own gain. Reviewing sales, refunds, returns, cash deposits, and voided transactions would help identify any form of fraud as an assistant manager. If there are any discrepancies identified, it would help to review logs of who accessed software at specific times to help identify the culprit. If there was something identified the next step would be to reports the findings to higher management depending on company protocol and be a confidant during the investigation process. It is not advisable to have direct confrontation as it could lead to further deceitful actions with the intent to cover up their actions.arrow_forward
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