Accounting Information Systems
11th Edition
ISBN: 9781337552127
Author: Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan Hill
Publisher: Cengage Learning
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Chapter 9, Problem 9DQ
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One of the largest losses in history from unauthorized securities trading involved a securities trader for the French bank Societe Generale. The trader was able to circumvent internal controls and create more than $7 billion in trading losses in six months. The trader apparently escaped detection by using knowledge of the bank’s internal control systemslearned from a previous back-office monitoring job. Much of this monitoring involved the use of software to monitor trades. In addition, traders were usually kept to tight trading limits. Apparently, these controls failed in this case.What general weaknesses in Societe Generale’s internal controls contributed to the occurrence and size of the losses?
Upon hearing that you are enrolled in a fraud class, a manager of a local business asks, “I don’t understand what is happening with all these major scandals such as the Bernie Madoff scandal, the Goldman Sachs accusations, and the Enron fraud.
There are billions of dollars being stolen and manipulated. How can any good auditornot notice when billions of dollars are missing?”
How would you respond?
As the auditor for Company A, you discover that a material sale ($500,000 sale; cost of goods of $300,000) was made to a customer this year. Because of poor internal accounting controls, the sale was never recorded. Your client makes a management decision not to bill the customer because such a long time has passed since the shipment was made. You determine, to the best of your ability, that the sale was not fraudulent. Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction.
Instructions:
Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction. Please make sure to use at least 100 words in your response. Once you give your response, please respond to at least two of your peers using at least 50 words in your responses. Remember to follow the netiquette guidelines found in the course…
Chapter 9 Solutions
Accounting Information Systems
Ch. 9 - Prob. 1RQCh. 9 - Prob. 2RQCh. 9 - How could the control matrix be used to recommend...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Name and explain four different types of batch...Ch. 9 - Prob. 9RQCh. 9 - Prob. 10RQ
Ch. 9 - Prob. 1DQCh. 9 - Explain why input controls are so important....Ch. 9 - Describe the similarities and differences between...Ch. 9 - Prob. 4DQCh. 9 - Prob. 5DQCh. 9 - Prob. 6DQCh. 9 - Prob. 7DQCh. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQCh. 9 - Prob. 11DQCh. 9 - The following is a list of six control plans from...Ch. 9 - Prob. 2SPCh. 9 - Figure 9.10 lists 10 control plans from this...Ch. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6P
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- Jane Ellerby and Sam Callison are discussing the recent fraud that occurred at LowRental Leasing, Inc. The fraud involved the improper reporting of revenue to ensure that the company would have income in excess of $1 million. What is fraudulent financial reporting, and how does it differ from an embezzlement of company funds?arrow_forwardThe following paragraphs describe fraudulent accounting committed by the company Rite-Aid in 1999. After reading the paragraphs, list the journal entries you think Rite-Aid would have used to do what is described here. You will have to make an educated guess as to what journal entries the company would use to cover up the fraud. Rite Aid failed to record an accrued expense for stock appreciation rights it had granted to employees, in a program that gave the recipients the right to receive cash or stock in amounts tied to increases in the market price of Rite Aid stock. Rite Aid should have accrued an expense of $22 million in FY 1998 and $33 million in FY 1999 for these obligations.arrow_forward14. Paul Schmidt, a representative for Westby Investments, is explaining how security analysts use the results of the accounting process. He states, "Analysts do not have access to all the entries that went into creating a company's financial statements. If the analyst carefully reviews the auditor's report for any instances where the financial statements deviate from the appropriate accounting principles, he can then be confident that management is not manipulating earnings." Schmidt is: correct. incorrect, because the entries that went into creating a company's financial statements are publicly available. incorrect, because management can manipulate earnings even within the confines of generally accepted accounting principles.arrow_forward
- Rohini works as an accountant with PQR Ltd. She embezzled $20,000 from the company bank account. She was caught in the annual audit of the company. She justified her action saying that her employer has not given any pay rise, so she had to take $20,000 from the account. Explain in your own words the internal control that may have failed in the above situation. Also explain which element of the fraud triangle Rohini is referring to justify her action.arrow_forwardAll-Around Sound Co. discovered a fraud whereby one of its front office administrative employees used company funds to purchase goods such as computers, digital cameras, and other electronic items for her own use. The fraud was discovered when employees noticed an increase in the frequency of deliveries from vendors and the use of unusual vendors. After some investigation, it was discovered that the employee would alter thedescription or change the quantity on an invoice in order to explain the cost on the bill.What general internal control weaknesses contributed to this fraud?arrow_forwardZZZZ best company fraud. in testimony before Congress, George Greenspan reported that one means he used to audit the insurance restoration contracts was to verify that his client actually received payment on those jobs. How can such apparently reliable evidence lead an auditor to an improper conclusion?arrow_forward
- When in an examination of a retail firm, Lily, a recently recruited internal auditor, discovered a plan in which the warehouse manager and a buying staff moved around Php2 million worth of products to an outside warehouse, where they were sold to third parties. Because the warehouse manager changed the perpetual inventory records and subsequently transmitted receiving reports to the accounts payable department for processing, the fraud was not discovered earlier by the internal audit team. Which one of the following steps did Lily follow that resulted in the discovery of the missing materials and the fraud? Group of answer choicesRandom sampling of receiving reports and tracing to the recording in the perpetual inventory records.Selecting a random sample of purchase orders and trace to receiving reports and to the records in the accounts payable department.Performance of physical inventory count, then reconciliation of the amounts with the perpetual inventory…arrow_forwardA former chairman, CFO, and controller of Donnkenny, Inc., an apparel company that makes sportswear for Pierre Cardin and Victoria Jones, pleaded guilty to financial statement fraud. These managers used false journal entries to record fictitious sales, hid inventory in public warehouses so that it could be recorded as “sold,” and required sales orders to be backdated so that the sale could be moved to an earlier period. The combined effect of these actions caused $25 million out of $40 million in quarterly sales to be phony.a. Why might control procedures listed in this chapter be insufficient in stopping this type of fraud?b. How could this type of fraud be stopped?arrow_forward# 18: In 2001, the Enron scandal rocked the world of accounting. What is the name of Enron's external auditor, who failed to detect rampant fraud at Enron and was indicted for obstruction of justice for shredding documents related to the audit? A. Coopers & Lybrand B. Grant Thornton C. Pricewaterhouse D. Arthur Andersen a och Bola Josi to ipval txoa silt at bumearrow_forward
- Charles Hart, an accounts payable clerk, is an hourly employee. He never works a minute past 5 P.M. unless the overtime has been approved. Charles has recently found himself faced with some severe financial difficulties. He has been accessing the system from his home during the evening and setting up an embezzlement scheme. As his boss, what control technique(s) discussed in lectures network risks and auditing could you use to help detect this type of fraud?arrow_forwardWorldCom committed the largest fraud in U.S. history. What was the primary method WorldCom’s management used to carry out the fraud?arrow_forwardA company is being investigated by the Securitites Exchange Commission (SEC). The chief executive officer (CFO) has been "cooking the books" for years to impress the CEO of the companies, showing bigger profits than they actually made. He provided investors and other government agencies with financials that reflect this discrepancy, which is very illegal, and most CFO's go to prision once investigators perform an extensive audit. He's not worried though, he's hidden the false transactions within line items that the SEC will never find. What type of bias is this? Authority bias Overconfidence bias Dunning-Krueger Effect I'm Indestructible Biasarrow_forward
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