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1. A small but growing firm has recently hired you to invest

1. A small but growing firm has recently hired you to investigate a potential fraud the firm suspects its purchases journal clerk of periodically entering fictitious acquisitions. The nonexistent supplier's address is given as a post office mailbox, which the clerk has rented. The clerk forwards notifications of fictitious purchases for recording in the accounts payable ledger. Payment is ultimately mailed to the mailbox. The clerk then deposits the checks in an account in the name of the nonexistent supplier.
Respond to the following:
Describe the terms "fraud," "fraud deterrence," "fraud detection," and "fraud investigation."
From the given scenario, list four red-flag indicators that might point to the existence of fraud. (Provide personal factors only.)
From the given scenario, list two procedures you could follow to uncover the clerk's fraudulent behavior.
Justify your answer using examples and reasoning.

2. Fraudulent financial reporting usually occurs as a result of environmental, institutional, or individual pressures and opportune situations. These pressures and opportunities, present to some degree in all companies, motivate individuals and companies to engage in fraudulent reporting. The prevention and detection of fraudulent financial reporting require that these pressures and opportunities be identified and evaluated in terms of the risks they pose to a company. These risk factors include internal ethical and control factors, as well as external environmental conditions.
Respond to the following:
Identify two company situational pressures that would increase the likelihood of fraud.
Identify three corporate opportunities that make fraud easier to commit and detection less likely.
For each of the following, identify the external environmental factors that should be considered in assessing the risk of fraudulent financial reporting:
A company's industry
A company's business environment
A company's legal and regulatory environment
Justify your answer using examples and reasoning.

Solution Preview

1. Describe the terms "fraud," "fraud deterrence," "fraud detection," and "fraud investigation."

Fraud: Fraud can be broadly defined as the wrongful act of deception. All fraudulent acts involve one person acting to deceive another person or group of people, in order to gain an element from the transaction. There are countless types, degrees, and forms of fraud, but they all incorporate the same basic element of deception in some form.

Fraud deterrence: Acts taken by the organization that deter acts of fraud. The measures initiated work to discourage fraud, and when put in place properly, are active tools that eliminates many of the frauds that take place. Large companies typically have extensive fraud deterrence programs, due to the amount of assets that they have at stake, that could be lost through potential frauds.

Fraud detection: In it's widest scope, fraud detection is the process of identifying that a fraud has taken place, or that certain activities or events lead to the belief that a fraud has taken place, or is on-going.

Fraud investigation: The fraud investigation is a comprehensive investigation of the fraud that has been alledged to occur within the setting. The fraud investigator progresses through a systematic framework to investigate the fraud, from beginning to the end of the case.

â?¢ From the given scenario, list four red-flag indicators that might point to the existence of fraud. (Provide personal factors only.)

(1) The nonexistent supplier's address is given as a post office ...

Solution Summary

1. A small but growing firm has recently hired you to investigate a potential fraud the firm suspects its purchases journal clerk of periodically entering fictitious acquisitions. The nonexistent supplier's address is given as a post office mailbox, which the clerk has rented. The clerk forwards notifications of fictitious purchases for recording in the accounts payable ledger. Payment is ultimately mailed to the mailbox. The clerk then deposits the checks in an account in the name of the nonexistent supplier.
Respond to the following:
Describe the terms "fraud," "fraud deterrence," "fraud detection," and "fraud investigation."
From the given scenario, list four red-flag indicators that might point to the existence of fraud. (Provide personal factors only.)
From the given scenario, list two procedures you could follow to uncover the clerk's fraudulent behavior.
Justify your answer using examples and reasoning.

2. Fraudulent financial reporting usually occurs as a result of environmental, institutional, or individual pressures and opportune situations. These pressures and opportunities, present to some degree in all companies, motivate individuals and companies to engage in fraudulent reporting. The prevention and detection of fraudulent financial reporting require that these pressures and opportunities be identified and evaluated in terms of the risks they pose to a company. These risk factors include internal ethical and control factors, as well as external environmental conditions.
Respond to the following:
Identify two company situational pressures that would increase the likelihood of fraud.
Identify three corporate opportunities that make fraud easier to commit and detection less likely.
For each of the following, identify the external environmental factors that should be considered in assessing the risk of fraudulent financial reporting:
A company's industry
A company's business environment
A company's legal and regulatory environment
Justify your answer using examples and reasoning.

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