Chapter 5: internal control, cash and receivables
Learning objective 1: describe
Describe fraud and its impact
Fraud and its impact
Fraud = an international misrepresentation of facts, made for the purpose of
persuading another party to act in a way that causes injury or damage to that
party
Examples
Insurance fraud, Check forgery, Medicare fraud, Credit card fraud, Identity
theft
Impact:
Afters the news got out shares drop, most people sold/ will sell there
share’s
Due to fraud a typical organization loses 5% of its revenue each year
The median loss per fraudulent organization is 117,000
Methods
Asset misappropriation
o Committed by employee or entity
o They steal money from the company
o Cover it up through erroneous entries
Creating fraudulent physical/ electronic documents
Altering physical/ electronic documents
Withholding/ destroying physical documents
Fraudulent financial reporting
o Making false entries in the books
o Making the company look better than it actually is
o Deceive investors, so they will invest in your company
o Committed by managers
cooking the books= fraud that involves making false/ misleading entries
Pressure: financial/ personal
Saddled in debt
Having unreasonable
expectations
Rich people never having enough
Opportunity:
Weak internal control
these elements take over decision Weak environment control
making Rationalisation: self-justification
I deserve this
,
, Ethics in business and accounting Decisions
Economic impact
If caught, thousands of people can lose their job
Ethical impact
Perpetrators own temporary benefit
It impacts lots of people for ones benefit
If caught there will be a penalty: jail, fines,…
Learning objective 2: understand
Understand the role of internal control and corporate governance
Internal control
they detected, prevented and corrected fraud
Five goals:
1. Encourage employees to follow company policy
a. Clear policy that sates fair treatment of employees
2. Promote operational efficiency
a. Do not waste resources
b. The lower the cost the better the profit
3. Safeguard assets
a. Against waste, inefficiency, and fraud
b. Prevent shoplifting and employee theft
4. Ensure accurate, reliable accounting records
a. Accurate records are essential to know what needs improvement
5. Comply with legal requirements
PEARL
The Sarbanes-Oxley act (SOX) and other jurisdictions
In effect since 2002
Some SOX provisions
Public Company Accounting Oversight Board: oversee audits of public
companies
MAY NOT: audit a public client AND provide certain consulting services for
the same client
Public companies must maintain a system of internal control and issue an
internal control report
CEO and CFO must certify in writing that their company reports are
accurate and complete
Stiff penalties: prison
Learning objective 1: describe
Describe fraud and its impact
Fraud and its impact
Fraud = an international misrepresentation of facts, made for the purpose of
persuading another party to act in a way that causes injury or damage to that
party
Examples
Insurance fraud, Check forgery, Medicare fraud, Credit card fraud, Identity
theft
Impact:
Afters the news got out shares drop, most people sold/ will sell there
share’s
Due to fraud a typical organization loses 5% of its revenue each year
The median loss per fraudulent organization is 117,000
Methods
Asset misappropriation
o Committed by employee or entity
o They steal money from the company
o Cover it up through erroneous entries
Creating fraudulent physical/ electronic documents
Altering physical/ electronic documents
Withholding/ destroying physical documents
Fraudulent financial reporting
o Making false entries in the books
o Making the company look better than it actually is
o Deceive investors, so they will invest in your company
o Committed by managers
cooking the books= fraud that involves making false/ misleading entries
Pressure: financial/ personal
Saddled in debt
Having unreasonable
expectations
Rich people never having enough
Opportunity:
Weak internal control
these elements take over decision Weak environment control
making Rationalisation: self-justification
I deserve this
,
, Ethics in business and accounting Decisions
Economic impact
If caught, thousands of people can lose their job
Ethical impact
Perpetrators own temporary benefit
It impacts lots of people for ones benefit
If caught there will be a penalty: jail, fines,…
Learning objective 2: understand
Understand the role of internal control and corporate governance
Internal control
they detected, prevented and corrected fraud
Five goals:
1. Encourage employees to follow company policy
a. Clear policy that sates fair treatment of employees
2. Promote operational efficiency
a. Do not waste resources
b. The lower the cost the better the profit
3. Safeguard assets
a. Against waste, inefficiency, and fraud
b. Prevent shoplifting and employee theft
4. Ensure accurate, reliable accounting records
a. Accurate records are essential to know what needs improvement
5. Comply with legal requirements
PEARL
The Sarbanes-Oxley act (SOX) and other jurisdictions
In effect since 2002
Some SOX provisions
Public Company Accounting Oversight Board: oversee audits of public
companies
MAY NOT: audit a public client AND provide certain consulting services for
the same client
Public companies must maintain a system of internal control and issue an
internal control report
CEO and CFO must certify in writing that their company reports are
accurate and complete
Stiff penalties: prison
