Fraudulent Financial Reporting

Topics: Auditing, Internal control, Audit Pages: 3 (801 words) Published: September 21, 2013
1.Is this an example of fraudulent financial reporting or misappropriation of assets In this case, it is misappropriation of assets because the fraud is the consequence of the employee theft. As it is stated in the case “manager at Aspen store was stealing payments by customers on accounts. That’s why subledger was out of balance with the GL. To cover it up, the manager debited the sales account, which was why the gross margins didn’t make sense.” 2.What created an opportunity to commit the fraud?

The first reason that push employees commit the fraud is due to the opportunity and motivation which means the more dissatisfied the employee, the more likely he or she was to engage in criminal behavior. The other reason is related to the financial pressures which mean that the great majority committed fraud to meet their obligations. In this case, the opportunity to commit fraud is typically addressed to the ineffective internal control because of the important amount that makes it difficult to the auditors to check for the internal control. Moreover, the staff accountant failed to set up sufficient procedures in order to identify the fraud. Also, there are higher probabilities of fraud if the issue is related to information technology. 3.What was the “trail” created by the fraud, that is, what circumstances tipped off the auditors that a fraud might have occurred? The auditor perceived that a large amount ($100 000) was debited from sales and credited from account receivables. This amount is justified to be an adjustment. Therefore, the auditor used her professional skepticism and was surprised how such a mistake could happen. The auditor examined through the analytical procedures and revealed that the gross margin percentages at the cross state store are lower due to the strategy of reduction the price in order to attract customers. The auditor talked to the controller about the previous problems (accounts receivables at Aspen store and the price...
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