Essay Anonymous Caller Auditing Case Study

Arel, Beaudoin, Cianci, (2011) argue that "executive ethical leadership and an "high-quality" internal audit function, can positively guide accounting managers ' making decisions involving uncertainties."

Above all, it identifies specific strategies that the firm should focus on and define allocation of responsibilities. Ideally, key functional areas should be broken down into different segments such as marketing, administration, human resources, and technology. However, determination of resource allocation depends mostly on the size of the firm. Presumably, larger firms such as the big four can set systems and procedures in all areas while small to medium sized firms handle certain areas they presume most valuable. In addition to well-functioning structure, accounting firms can achieve long term success by maintaining a blend of people and skills. A well-balanced team will usually have a mixture of qualified accountants, bookkeepers, and administrative support. Similarly, management capability to retain and motivate employees is crucial to a firm’s success. In order to attract and lead the appropriate people, creating the right tone is an important element in corporate governance and critical to effective

How management identifies those transactions, events and conditions that may give rise to the need for accounting estimates to be recognized or disclosed in the financial statements. And the auditor shall make inquiries of management regarding changes in circumstances that may give risk or new or the need to revise existing, accounting

Internal fraud consists in “a type of fraud that is committed by an individual against an organization. [Furthermore], a perpetrator of fraud engages in activities that are designed to defraud, misappropriate property, or circumvent the regulations, law, or policies of a company”[8]. Not only has the incidence of internal fraud increased in frequency because of the availability of sensitive information such as client details or confidential business documents; moreover, this type of fraud is found in various types of organizations, ranging from corporations, public service institutions and financial institutions. Our analysis will concentrate on the most common and prolific types of internal fraud, namely identity theft, insider trading, loan fraud and wire fraud. Interestingly, PriceWaterhouseCooper conducted a survey that revealed that the “demographics of a typical fraudster are as follows: males (85% of cases), 31-50 years (72% of cases), reached high-school level (50%), Bachelor’s or post graduate degree (50%) and middle or senior management (52%)”[9].

According to Harvard Law School’s article, approximately two-thirds of companies in the U.S. are affected by fraud. However, whistleblower Hotline can be as defense against management overrides. The article noted that whistleblower could be more effective if it become as apart of the corporate compliance programs and a reward of any monetary sanctions collected to motivate the employees Also, the article mention that the employees

In fraud committed against organizations, the victim of fraud is the employee’s organization. In frauds committed on behalf of an organization, executives usually are involved in some type of financial statement fraud; typically, to make the company’s reported financial results appear better than they actually are. In this second case, the victims are investors in the company’s stock. A third way to classify frauds is via the use of the ACFE’s occupational fraud definition, “the use of one’s occupation for personnel enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” (ACFE, 2010). The ACFE includes three major categories of occupational fraud: asset misappropriations involves the theft or misuse of the organization’s assets, corruption involves the wrongful use of influence in a business transaction in order to procure benefits contrary to their duty to their employer, and fraudulent financial statements involving falsification of an organization’s financial statements for personal gain.

Accountants are relied upon to be trustworthy and maintain high ethical standards. It is because of the nature of the profession that puts them in a position of trust with people who rely on their professional judgment and guidance in making decisions. These decisions are extremely important in accounting and more so that companies that have high ethical standard or main good ethical culture spend enormous time to train the staffs about the conduct that is expected of them.

The manipulation of accounts fraud scheme is generally fulfilled by employees in top management positions and it usually involves making understatements or overstatements on financial statements making it very hard to detect. The process followed as Troy Adkins, (2015) explains is very simple. The financial statements are either overstated to show different figures in the earnings on the income statements making them look better than they actually are or the earnings in the current periods are manipulated in such a way that the revenue is understated or they inflate the current year’s expenses. The second process includes making the financial statements look worse than they are in reality. Deloitte, (2009) explains a number of ways which the accounts are manipulated where as one of the ways is to manipulate the reported earnings directly. They further explained that overstating the

The general purpose of this research is to determine the cause for financial statement fraud. In addition, the purpose is to review ways fraudulent behavior can be detected and prevented. Lastly,

What are the pressures that lead executives and managers to “cook the books?” There are several factors that can come into play. For WorldCom, it started with the deterioration of the industry in 2000. This was due to overcapacity, heightened competition, the economic recession, the dot-com bubble collapse, and a reduced demand for telecommunications services. All of these factors put extra pressure on WorldCom’s most important performance indicator, the expense-to-revenue ratio. The company was so concerned about keeping it above 42% that they were willing to do anything, even commit fraud. Bernie Ebbers told the senior staff that they would lose everything if the company did not improve its performance.

Ethics in any industry is important, but for Accounting professionals and those in need of their services, it is a particularly stressed element. Information provided by accountants is used to make major decisions, including investing, downsizing, expanding, etc, so accountants are expected to be competent, reliable, and have a high degree of professional integrity. Because of these high expectations, the professional accountancy industry, like many other professions, has adopted professional codes of ethics (Woelfel, 1986). These ethical codes go above and beyond the requirements for state or federal laws and regulations. There are several professional organizations within the

Accounting employees have a duty to be forthright and truthful when interacting with the independent auditors, and

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

For example, if the caller continues to work with the company and is senior executives knowing that they have intentionally committed fraud this could degrade her integrity. Another example, if the company is caught committing fraud her entire integrity reputation could be ruin. In addition, if the company is caught committing fraud her entire company will undergo an investigation for alleged fraud, leading to possible loss of employment. I say this because, when a company in under investigation all employees are investigated thoroughly. If it reveals that the caller knew about the company’s fraud and didn’t report to the proper authority; she could be held responsible for not coming forward beforehand.

To help individuals report, it is suggested the management should start a whistle blowing hotline. Such a hotline can be a critical component of the company’s anti corruption efforts as tips can be a common way of detecting frauds.