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Control System Conditions

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1. What are several conditions that may lead to fraud? To what type of fraud may these conditions lead?

2. Explain some risks to the revenue and collection cycle that are the result of improper revenue collection.

3. Describe the source documents and controls that would be included in a typical production cycle.

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Conditions that may lead to fraud and the corresponding forms

Fraud takes place when there is intent to deceive. In business, fraudulent act may include intentionally and unreasonably inflating some entries in the company's financial statements for varied purposes such as creating good impressions or pictures for investors, lenders, and other stakeholders such as concerned government agencies.

At times, financial managers deceive potential lenders by manipulating some expenditure entries in order to improve the financial ratios and make it appear that the company would have the capacity to pay interest and the periodic amortizations for the loans applied for.

Depending on the intentions, the company's management people are engaged in fraudulent acts if their intention is to deceive by creating an erroneous picture of the business situation.

In relation to issuance of securities, companies are engaged in deception through the so-called washed sales just to make it appear that there is an active demand of shares of stocks while in reality there is none. A wash sale is a pretended sale between traders in the stock market to make it look like there is activity going on in the stock of a ...

Solution Summary

This solution discusses aspects of control system conditions.