...CORPORATE FRAUD & THE ROLES OF AUDITOR (BANGLADESH PERSPECTIVE) Submitted To: Tahmina Ahmed Lecturer Department Of Accounting And Information Systems University Of Dhaka. Submitted By: Group No. 02 ID 18003 18051 18053 18073 18089 18200 NAME Safiqur Rahman Mahadin Anik Mahmudul Islam Arnab Kumar Chakrabartty Abdullah Al Noman Namrata Chakma Date of Submission: November 11, 2014. 1|Page This Report Includes The Following Contents Chapter No. Contents Page No. 01.Introduction 1.1 1.2 1.3 1.4 Introduction. Scope of the report. Objective of the report. Limitations of the report. What is corporate fraud? Kinds of corporate frauds. Reasons for corporate fraud. Auditor’s role. Bangladesh perspective. Findings of the study. 03 03 03 04 04 05 05 06 09 10 02.Literature Review 2.1 2.2 2.3 2.4 2.5 03.Findings Of The Study 3.1 04.Conclusion & Recommendations 4.1 4.2 Conclusion. Recommendations. 12 13 05. References. 5.1 References. 14 2|Page CHAPTER 1 INTRODUCTION 1.1 WHAT IS CORPORATE FRAUD AND WHAT WE ARE GOING TO DO THROUGHOUT THE WHOLE REPORT? The term ‘Fraud’ essentially includes the use of deception to make some personal gains for oneself dishonestly obviously and create some losses for another within the organization or outside the organization. Although definitions of corporate fraud vary in different situations, most of them are based on these general themes. The term ‘Corporate Fraud’ usually includes activities such as corruption, misuse of accounts...
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...of Fraud and Mechanisms to Address Fraud: Regulation, Corporate Governance, and Audit Quality 1. The auditor is not responsible for the presentation of financial statements; therefore, the auditor has no responsibility for fraud in the financial statements. FALSE 2. An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits. TRUE 3. The auditor is responsible for actively considering fraud risks in order to obtain reasonable assurance that the financial statements are free of material fraud. TRUE 4. Auditors need to consider fraud arising from misappropriation of assets and fraudulent financial reporting. TRUE 5. Fraud is an intentional act involving the use of deception that results in a material misstatement of the financial statements. TRUE 6. An example of fraudulent financial reporting is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account. FALSE 7. BruceCo. has accounted for the revenue of Jiffy Mac, Inc., one of its suppliers as though it were its subsidiary. BruceCo. has probably committed fraud because of its misapplication of consolidation principles. TRUE 8. Consideration of fraud in financial statement audits is a relatively new concept derived originally from the Sarbanes-Oxley Act. FALSE 9. The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by...
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...accounting records to be audited and in true and fair view. Independence of the auditors also being underline in the Act, where any relationship between the independent auditor and the companies must be disclose, to prevent any conflict in interest when auditing the accounting records. The external auditors were given the power to obtain information and inspect the accounting records of the companies because of the nature of their duties. As stated in Companies Act 1965 section 174 (2)(a), the roles of an auditor is to report the consolidated accounts by give a true and fair view as required by section 169 and in accordance with the applicable approved accounting standards. In 1971, during the implementation of New Economic Policy (NEP), where after the eruption of violence between Malays and Chinese in 1969, Malaysia economy change its direction from to target foreign interest of free enterprises towards in the control of the government. By the strong presence of the government to improve and balance the economics including the incomes distribution and assets ownerships, Malaysian now has a shared goal together in socio-economic; and thus increase the demand for the independent auditors and present more existence. During 1980s, Malaysia was in economics recession where NEP was slowly being discarded by the local communities and come to an end. There are no any significant changes in the roles of the auditors in late 1980s when started the operation of KLSE and amendment of the Companies...
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...Financial Statement Fraud ACCT 710: Assignment 6-2 Shannon Baxley David Welch September 24, 2011 Table of Contents Abstract………………………………………………………………………………………3 Introduction…………………………………………………………………………………..3 Literature Reviews……………………………………………………………………………5 Conclusion…………………………………………………………………………………..16 References…………………………………………………………………………………...18 Abstract This paper describes financial statement fraud (FSF) and how it may occur within companies. The reason of this study was to research FSF detection and prevention. Research was also done to determine any influences that SAS (Statement on Auditing Standards) No. 82 and SAS No. 99 had on audit programs and the analysis from external auditors. Thirteen scholarly journals were reviewed in order to analyze SAS No. 82 and No. 99 and to show ways to detect and prevent fraud. Results found that managers and/or auditors can create fraud intentionally and unintentionally. There are ways to prevent fraud and educating managers and/or auditors is a good way to make sure fraud does not occur. Introduction Financial statement fraud (FSF) involves the premeditated issuing of phony information on a financial statement (financial statement fraud, 2011). FSF occurs when a company exaggerates assets or revenue, or when it devalues liabilities and expenses (financial statement fraud, 2011). The American Institute of Certified Public Accountants or AICPA defines fraudulent financial reporting as “intentional misstatements or omissions...
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...Table of Contents Introduction……………………………………………………………………………………..1-2 Issues………………………………………………………………………………………………2 The Discovery of Fraud……………………………………………………………………..…..3-4 Corporate Governance of FCB……………………………………………………………………5 Auditor Dilemma……………………………………………………………………….……….5-7 Using the Fraud Triangle Model to analyze the situation in Flat Cargo Berhad……………..…8-9 Who is responsible in the fraud of Flat Cargo Berhad ……………………………………..…10-11 Prevention Measures for Fraud ……………………………………………………………….12-13 Detection Measures for Fraud…………………………………………………………...……14-15 Recommendation…………………………………………………………………….……….16-17 Conclusion…………………………………………………………………………...……….18-19 References………………………………………………………………………………………..19 Introduction The case is related to one company known as Flat Cargo Berhad (FCB), FCB was one of the largest air freight companies in Malaysia which servicing several government linked companies including Freight Malaysia Berhad. FCB is a listed company and was registered as an investment holding company with several subsidiaries. Among its subsidiaries are FC Spare Sdn Bhd, Cargo Management Sdn Bhd, FCB (SPV) Ltd, Cargo Air Services Sdn Bhd and FC Air Ltd. FCB started its operations in 1997 with two aircrafts: a Boeing 737-200F and a Cessna Grand Caravan. FCB’s major shareholder in 1997 had been Bangor Berhad, which was part of a diversified international family owned conglomerate, the Miri Group. On September 2001 the company was listed in Bursa Malaysia. The...
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...full text archive of this journal is available at www.emeraldinsight.com/0268-6902.htm The changing role of the auditors R. Jayalakshmy, A. Seetharaman and Tan Wei Khong Faculty of Management, Multimedia University, Cyber Jaya, Malaysia Abstract Purpose – To highlight the pressures that the auditors would face in the era of globalisation and the challenges they should be willing to accept in order to maintain trust and integrity. Design/methodology/approach – A wide range of articles and journals published in international journals as well as local journals has been reviewed. The areas covered include audit fraud, true and fair view interpretation, auditor independence and role of internal auditors. Further, ideas have also been obtained from critical write-ups in the business magazines on the fall of multinationals. Findings – A wide range of interpretation has been given by various groups of people on their understanding of the phrase “true and fair”. This has created great confusion as to the interpretation of the audit reports. This has been proven by the fall of many multinationals and the audit pioneers, Andersens. This is one of the causes of audit fraud and it is also seen that as the auditors face an enormous challenge as they enter the twenty-first century, they should be willing to change their attitudes towards their clients. Professionalism should be in the forefront, and an overhaul in the concept of “true and fair” could probably be the solution to harmonisation...
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...1. Auditors were unable to verify the aircrafts claimed to have been purchased by FCB in 2005. The audit team found around RM231m of non-functional rundown aircraft in hangar. This situation leads to potential fraud bcause those old aircrafts had high price tag.Thus, it will increase the holding cost or storage cost of the assets. Then, the auditor should conduct the common test procedure which includes the examination of vendors’ invoices and receiving reports. The auditor had to perform the physical examination of those assets in order to verify the existence of the assets with the records. It is a must for every purchase to have invoice or grant to verify the purchase. Besides that, for the purchase involving high value of asset, it must have approval from top level of company which is Board of Director. In case the aircraft is non-functional rundown, it must be disposed in order to eliminate the unnecessary expenses for the company. 2. There are increasing in debtors’ confirmation letters were returned. Reasons: those debtors had changed their mailing addresses. Perhaps the company had a phantom client. So, Mr. Chuah need to confirm the account receivable whether the address is updated or real address. Besides that, the company should be using positive confirmation letters. Besides, the service agreement should be reviewed & obtain the explanation from FCB. For control procedure, the auditor needs to review periodically the account receivable trial balance especially...
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...that of the interests of those responsible for providing information. True False 2. A financial statement audit is a systematic process of objectively obtaining and evaluating evidence. True False True False True False True False 3. Auditors should conduct their work with an attitude of professional skepticism. 4. A bank using Milton Company's financial statements to determine the creditworthiness of a potential loan to Milton is a good example of the need for unbiased reporting. 5. An integrated audit requires the auditor to assess the effectiveness of internal controls. 6. In all states, a CPA must have completed at least 150 hours of college semester hours to receive their license. True False 7. The Center for Audit Quality was started by the International Federation of Accountants. True False 8. The Center for Audit Quality has the primary authority to set auditing standards. True False 9. In an audit, management is considered the “client”. True False 10. Auditing is the process of attesting to assertions about economic actions and events. True False 11. Auditing is the process of verifying the accuracy of the financial statements. True False 12. Internal auditing only provides assurance about internal control effectiveness. True...
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...Flat Cargo Berhad Presented by: ABDUL RAHMAN BIN YAACOB AFIFAH BINTI HALIM MAZIAH BINTI MOKHTAR MOHAMMAD AZWAN BIN BASHIRUN MOHD ZUBAIR BIN NOR AZMAN AC088467 AC088398 AC088445 AC088323 AC086470 Presented to: SIR AZWAN ABD RASHID NABILAH BINTI SAAD AC088349 INTEGRATED CASE STUDY ACSB 413 INTRODUCTION Company Background 1997 Started operations with 2 aircraft - Boeing 737-200F - Cessna Grand Caravan Operating Primarily -Air cargo carrier Principal activities of FCB Subsidiaries -Air Freight Service and Aircraft Ground handling service 15 September 2001 -Obtained listing in Bursa Malaysia Auditor -Kenyans & Associates In 2001 to 2004 -the have a fast growing at intra- Asian air express market -demand for express transportation Services increased. -give best delivering quality services and satisfying customer demand. FCB Wholly Owned Subsidiaries Cargo management Sdn Bhd Fc Spare Sdn Bhd FCB Wholly Owned Subsidiaries FC Air Ltd FCB (SPV) Ltd Cargo Air Service Sdn Bhd FCB secured agreements with well-established companies Up to 2005 Bax Global United Parcel Service (UPS) Express Worldwide Nippon Express CityLink Nationwide Express Top Management Team Dato’ Ibrahim Samad • Chairman • Independent non-executive director • Former of Directors General for Ministry of Transportation • As a Malaysia chamber of commerce’s former president Mr Lim Loon Sim • Chief Executive Officer (CEO) • Founder for FCB • Board...
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...PROBLEM 5 LITERATURE REVIEW 6 a. Introduction 6 b. The Need for an Audit 7 c. Risk of fraud 8 d. The Auditor-Investor ''Expectation Gap'' 9 e. Auditing Profession and Challenges 9 f. Public opinion 10 g. Family or Personal Relationship 10 h. Integrity 11 i. Inherent limitations of an audit. 11 j. Responsibility of Auditors to Third Parties – Case Law 12 k. International, Assurance Auditing, Standards Board (IAASB) 14 CORPORATE FRAUD CASES 16 CASE STUDY: 21 CONCLUSIONS………………………………………………………………………………24 REFERENCES……………………………………………………………………………..….25 SUMMARY OF TERMS ISA: International standards of Audit KPC: Kenya Pipeline Company IAASB: International Assurance Audit Board IFAC: International Federation of Accounting USD: United States Dollar KCB: Kenya Commercial Bank BCCI: Bank of Credit International SEC: Securities and Exchange Commission ABSTRACT The way in which auditors perform their duties and the auditing profession in general raises questions and puts the auditors on the spotlight from clients who rely on their reports. Questions on whether the public trust the way auditors perform their secondary duty of detecting errors and frauds, the reliability, completeness and accuracy of their auditing reports have been raised. The research focuses on; Management and auditors’ responsibility for its prevention and detection of fraud, the auditor’s responsibility for reporting fraud to management. The primary responsibility for prevention and detection of errors...
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...1. Prospective Client Acceptance: When accepting a new client, which parties could an auditor typically speak to about the client? When accepting a new client that previously had another auditor, is the successor auditor required to communicate with the predecessor auditor? Which party does the burden of initiated contact rest with? Does the predecessor auditor have to get permission from the client before speaking to the successor auditor? What is the purpose of the successor and predecessor communicating? The successor auditor could speak to the predecessor auditor, local attorneys, other CPAs, banks, and other businesses. For prospective clients that have previously been audited by another CPA firm, the new (successor) auditor is REQUIRED by auditing standards to communicate with the predecessor auditor. The burden of communication rests with the successor auditor but the predecessor is required respond. The predecessor does have to get the client’s permission before making communication with successor auditor. The purpose of communication is to help the successor auditor evaluate whether to accept the engagement. 2. What is the purpose of the engagement letter? What is included in the engagement letter? Audit standards require that auditors document their understanding with the client in an engagement letter. It includes the engagement’s objectives, the responsibilities of the auditor and management, identification of the financial reporting framework used by management...
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...a)The purpose and use of the different accounting records which can be used in MonteHodge: Accounting is a crucial discipline for keeping track of quantifiable factors for a business or individual. Accountants are primarily employed to track the flow of money through an organization. In some cases, they are charged with ensuring legal compliance. In others, they are more specialized in optimizing that cash flow. Accountants also organize and aggregate financial information and produce reports for people less experienced in the discipline. (Source: Purpose of Accounting | eHow.comhttp://www.ehow.com/about_4679149_purpose-accounting_.html#ixzz22YwT2kpu ) The accounting system for your business consists of several types of records. Although there are many types of underlying financial records, such as invoices, journals, and receipts, the major accounting records are types of financial statements that summate the financial status of a business. Each type of accounting record details certain information about your business, and each is used for a different purpose, but each type is also linked to another record in your set of financial statements. Although modern accounting software creates these statements automatically based on transactions you enter, it’s still important to understand how each type of accounting record is used. Income Statement The income statement lists all your business income and expense transactions. It is also known as a profit and loss statement...
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...the External Auditors’ Ability to Assess Fraud Risk on Their Ability to Detect the Likelihood of Fraud Nahariah Jaffar* Faculty of Management, Multimedia University Arfah Salleh Graduate School of Management, Universiti Putra Malaysia Takiah Mohd Iskandar Faculty of Economics and Business Management, Universiti Kebangsaan Malaysia Hasnah Haron School of Management, Universiti Sains Malaysia ABSTRACT The Malaysian Approved Standards on Auditing, AI 240 on “Fraud and Error” (MIA, 1997) requires the auditor to assess the risk of fraud and error during the audit of financial statements. Based on the risk assessment, the auditor should design audit procedures to obtain reasonable assurance that misstatements arising from fraud and error that are material to the financial statements taken as a whole are detected. Inability of the external auditor to detect material misstatements, particularly intentional misstatements, may expose the external auditor to litigation. The present study aims to examine the effect of the external auditor’s ability to assess fraud risk on his/her ability to detect the likelihood of fraud. An experimental approach is adopted by sending case materials to audit partners and audit managers attached to auditing firms operating in Malaysia. The result shows that in a high fraud risk scenario, the external auditor’s ability to assess fraud risk has a positive effect on his/her ability to detect the likelihood of fraud, whereas in a low fraud risk...
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...CASE STUDY-WEEK 3 We learned in Chapter 2 that the fraud triangle identifies three critical elements that generally must exist in order for fraud to occur. They are: Motive: motivation, incitement, stimulus, spur; influence, occasion, ground, cause. Motive, incentive, inducement apply to whatever moves one to action. Motive is, literally, something that moves a person; an inducement something that leads a person on; an incentive something that inspires a person. Motive is applied mainly to an inner urge that moves or prompts a person to action, though it may also apply to a contemplated result, the desire for which moves the person: His motive was a wish to be helpful. Inducement is never applied to an inner urge, and seldom to a goal: The pleasure of wielding authority may be an inducement to get ahead. It is used mainly of opportunities offered by the acceptance of certain conditions, whether these are offered by a second person or by the factors of the situation: The salary offered me was a great inducement. Incentive was once used of anything inspiring or stimulating the emotions or imagination: incentives to piety; it has retained of this its emotional connotations, but (rather like inducement ) is today applied only to something offered as a reward, and offered particularly to stimulate competitive activity: to create incentives for higher achievement Opportunity: Opportunity is when something is presented to you or realized that gives you some kind of advantage...
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...following would be considered an assurance engagement? a. Giving an opinion on a prize promoter’s claims about the amount of sweepstakes prizes awarded in the past. b. Giving an opinion on the conformity of the financial statements of a university with generally accepted accounting principles. c. Giving an opinion on the fair presentation of a newspaper’s circulation data. d. Giving assurance about the average drive length achieved by golfers with a client’s golf balls. e. All of the above. 1.24 It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that a. A potential conflict of interest always exists between the auditor and the management of the enterprise under audit. b. In audits of financial statements, the auditor acts exclusively in the capacity of an auditor. c. The professional status of the independent auditor imposes commensurate professional obligations. d. Financial statements and financial data are verifiable. 1.25 In an attestation engagement, a CPA practitioner is engaged to a. Compile a company’s financial forecast based on management’s assumptions without expressing any form of assurance. b. Prepare a written report containing a conclusion about the reliability of a management assertion. c. Prepare a tax return using information the CPA has not audited or reviewed. d. Give expert testimony in court on particular facts in...
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