Professional Documents
Culture Documents
2. Full and Fair Disclosures-the organization should provide full, fair, accurate, timely
and understandable disclosures in the documents, reports and FS that it submits to the
SEC and to the public
3. Legal Compliance- code of ethics should require employees to follow applicable
governmental laws, rules, and regulations
4. Internal Reporting of Code Violations- the code of ethics must provide a
mechanism in permit prompt internal reporting of ethics violations.
5. Accountability- an effective ethics program must take appropriate action when code
violation occurs.
- Includes various disciplinary measures, including dismissal.
Fraud and Accountants
Fraud - false representation of a material fact made by one party with the intent to deceive or
induce the other party to justifiably rely on the fact to his/ her detriment.
According to law, a fraudulent act must meet the ff conditions:
a. False representation- there must be false statement or a nondisclosure
b. Material fact- a fact must be substantial factor in inducing someone to act
c. Intent- there must be the intent to deceive or the knowledge that ones statement is
false.
d. Justifiable reliance- the misrepresentation must have been a substantial factor on
which the injured party relied.
e. Injury or loss- the deception must have caused injury or loss to the victim of the fraud
In accounting, fraud is also commonly known as white-collar crime, defalcation,
embezzlement, and irregularities
Two levels
1. Employee Fraud - fraud by non-management employees; is generally designed to
directly convert cash or other assets to the employees personal benefit.
Examples: stealing something of value, concealing the crime to avoid detection
2. Management Fraud - more insidious than employee fraud because it often escapes
detection until the organization has suffered irreparable damages or loss
- This may be done to meet investor expectations or to take advantage of stock options
that have been loaded into the managers compensation package
The Fraud Triangle
-consists of three factors
a. Situational Pressure- which includes personal or job- related stresses that could
coerce an individual to act dishonestly
b. Opportunity - involves direct access to assets and/ or access to information that
controls assets
c. Ethics- pertains to ones character and degree of moral opposition to acts of
dishonesty
Fraud Scheme
1. Fraudulent Statements
2. Corruption
3. Asset Misappropriation
Internal Control Concepts and Techniques
Internal Control
- the process designed and effected by those charged with governance, management, and
other personnel to provide reasonable assurance about the achievement of the entitys
objectives with regard to reliability of financial reporting, effectiveness and efficiency of
operations and compliance with applicable laws and regulations.
Components of Internal Control
Risk Assessment - organization must perform a risk assessment to identify, analyze and
manage risks relevant to financial reporting.
Risks can arise or change from circumstances such as:
1. Changes in the operating environment that impose new or changed competitive
pressures on the firm.
2. New personnel who have different or inadequate understanding of internal control
3. New or reengineering information systems that affect transaction processing.
4. Significant and rapid growth that strains existing internal controls.
5. The implementation of new technology into the production process that impacts
transaction processing.
Control Activities- are policies and procedures that help ensure that management
directives are carried out.
Specific procedures that are relevant to financial statement audit would
include:
1. Performance Reviews- it includes reviews and analyses of actual performance
versus budgets, forecasts and prior period performance.