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Fraud detection & prevention (Detecting & preventing (Different…
Fraud detection & prevention
Meaning of fraud
Fraud Act 2006 (UK)
Dishonestly (untrue or misleading)
Distinguishing factor between fraud & error
Intentional misstatement
Fraudulent financial reporting = omissions or disclosures
Misappropriation of assets = theft of assets
Why it takes place?
Three common characteristics
Incentive or pressure
Perceived opportunity
Person rationalise behaviour
Human willingness
Internal checks & controls are inadequate
Not robust or abused that position
Fraudulent financial reporting
Draws on ISA 330 = risk & ISA 240 = responsibilites
Managers influencing performances & profitability
Pressures to meet market expectations
Inflate earnings to secure bank financing
Overriding internal controls
Manipulation, falsification (forgery)
Misrepresentation = events, transactions
Intentional misapplication = relating to amounts or disclosure
Recording fictitious journal entries
Inappropriately adjustments (estimate balances)
Omitting, advancing or delaying recognition
Concealing or not disclosing facts
Altering records & unusual transaction
Misappropriation of assets
False or misleading records or docs
Variety of ways
Embezzling receipts
Staling physical assets
Causing an entity = kickback or inflating prices
Using an assets for personal use
Impact of fraud
Depending on the type
Implications for different stakeholders
Understatement of profits will affect tax payable
Overstated profits impact on suppliers or banks to risk
Direct loss to the owners
Reputation loss & implications for new investors, confidence of public
Detecting & preventing
Corporate governance codes
Internal controls at all levels to detect & prevent fraud.
Systematic procedures, incentives & policies
Formal training & awareness-raising programmes
Databases or computerised dealings = suppliers, customers & banks
Different techniques
Physical controls
Separation of duties
Authorisation policies
Documentary details = signatures
Managerial responsibilities = detection & prevention, internal audit & risk committee.
Individuals to uphold ethical principles & values
Role of auditors
ISA 240 UK & Ireland
Opinion truth & fairness of FS
International standards to prevent & detection
Free from misstatement
Objectives of ISA
Identify & assess the risk misstatement
Obtain audit evidence regarding risk.
Respond appropriately to fraud