Describe six indicators of fraudulent activities

Assignment Help Accounting Basics
Reference no: EM132596503

Question - Financial statement fraud is the deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive financial statement users.

a. Explain any three (3) elements of perfect fraud storm that could be related to the corporate scandals of the famous Enron Corporation and WorldCom, Inc.?

b. Amy has been accepted to join the internal audit department of Setia Angkasa Berhad (SAB), a medium-size construction company with the head office in Johor Bharu and four (4) branches throughout the major cities in Malaysia. SAB is listed on Bursa Malaysia and has reported net earnings of RM350 million and RM420 million for the financial year 31 December 2018 and 31 December 2019, respectively.

After working with SAB for a few months, Amy has identified the following unresolved issues that might lead to fraudulent activities:

Issue 1: The board of directors (BOD) of SAB consists of eight (8) members with experiences of more than 10 years. Due to their expertise, four (4) directors are paid three times higher than the industry's average. Occasionally, some of the company's directors arranged meetings with the senior officers of the company without the knowledge of the Chief Executive Officer (CEO). Amy also noticed that there is lack of communication between the board members and the external auditors. In many cases, the BOD failed to identify the problems in SAB.

Issue 2: The project controller, Miss Arina, discovered some accounting irregularities in the projects proposed by Dato Zek, the company's director cum Project Manager. The projects specifications do not meet the company's standards and breach the public authority legislation. Miss Arina personally believes that the projects might have adverse effects on the public and other stakeholders. She has been persuaded by Dato Zek to alter and revise some of the accounting figures in order to make the projects appear viable. Dato Zek is convinced that the projects will eventually generate profits for the company. The company has a policy of rewarding employees based on their contributions to the company's revenues. Dato Zek is Miss Arina's uncle.

Issue 3: Several accounting issues encountered by Amy personally are:

1. Expenses for the Board of Directors' family such as entertainment, hotel charges and cleaning services have been charged to the company's expenses account.

2. There are overdue account receivables from a few companies but no further actions have been taken by the management. These companies have been sponsoring many events organized by the company.

3. It has been the company's policy that any withdrawals, regardless of the amount, to be signed by the Finance Manager, who has been employed since the first day of the company's establishment. Nobody in the company has ever questioned his integrity as he is seen to be a workaholic and seldom takes his annual leave.

4. Most of the junior employees in the accounting department lack experience and are not aware of SAB's accounting principles and procedures.

Issue 4: The external auditor who performed the audit for the financial year ended 31 December 2018 has raised his concern over the insufficient allowance for doubtful debts. Discussion with the CEO revealed that he is aware of the issue, but is reluctant to increase the allowance because of the adverse effect towards the company's profit.

The CEO is willing to take full responsibility of any misstatements and insisted that the auditor ignore the issue. The external auditor agreed to the management request and is aware of the risk associated with issuing an unqualified opinion on misstated financial statements.

The decision was partly influenced by the fact that SAB is one of the auditor's main clients, whose audit fee contributes to more than 20% of the auditor's annual earnings. The CEO had once threatened to replace the existing auditor if the issue is highlighted in the auditor's report.

Required -

i. Describe six (6) indicators of fraudulent activities that have been highlighted in the issues raised by Amy.

ii. Explain the possible implications if the six (6) indicators that you have identified in (a) are not addressed by the management.

iii. Discuss three (3) appropriate actions that should be taken by Amy, as the company's internal auditor, in dealing with the above issues.

Reference no: EM132596503

Questions Cloud

Determine and create a schedule of cost of goods sold : How create a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold.
How explain to the sales manager on managerial uses : How Explain to the sales manager on ANY THREE (3) managerial uses of cost-volume- profit analysis in decision making. Provide the suitable example.
What was the company Days Outstanding in Inventory : Easton Company had average inventory for the year of $640,000 and an inventory turnover ratio of 9.8. What was the company's Days Outstanding
Calculate the gross wages of unemployment insurance fund : Calculate the gross wages of Unemployment Insurance Fund is one of the deductions that can be made from gross wages in order to calculate taxable income
Describe six indicators of fraudulent activities : Describe six (6) indicators of fraudulent activities that have been highlighted in the issues raised by Amy
Diversifiable and nondiversifiable risks : In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor
?calculate the profit for the years ended : ?Calculate the profit (loss) for the years ended 30 April 2018 to 30 April 2020 which must be transferred to the income statement
Appropriate organizational form for a startup business : q1 Why would secrecy in operating a business be important to an owner? What form of organization would be most appropriate for a business requiring
Compare and contrast the required skills of a franchisee : Compare and contrast the required skills of a franchisee with requirements necessary when starting a brand-new business. Which one are you most suited for and w

Reviews

Write a Review

Accounting Basics Questions & Answers

  What is the cash flow from the project

The Wet Corp. has an investment project that will reduce expenses by $25,000 per year for 3 years. The project's cost is $25,000.

  Nielson corp sells its product for 8800 per unit variable

nielson corp. sells its product for 8800 per unit. variable costs per unit are manufacturing 4800 and selling and

  Prepare the journal entries needed on the books

Bonds payable with a par value of $900,000, which are dated January 1, 2014, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2024.

  Complete multiple-step income statement for the company

Prepare a complete multiple-step income statement for the company. (Hint: Rely on the amounts and percentages given to infer missing values.) (Round "Earnings per share" to 2 decimal places.)What is the gross profit percentage? (Enter your answer as ..

  Find a recent cpa case where the member was expelled

What should be of interest is how the AICPA finds out about unprofessional conduct. 1. the public files a compliant. 2. the CPA him/herself voluntarily discloses (a felony conviction, for example), 3. a government agency notifies the AICPA (the IR..

  Johnson manufacturing incurs unit costs of 788 509 variable

johnson manufacturing incurs unit costs of 7.88 5.09 variable and 2.79 fixed in making a sub-assembly part for its

  Assumptions behind transactions and full journal entries

Explain to him the rules of debits and credits for the balance sheet and income statement - journal entry that would be recorded that impacts the balance sheet.

  Prepare all necessary journal entries for watkins for 2011

Compute the amount of the lease receivable. Prepare all necessary journal entries for Watkins for 2011.

  Determine the dollar amounts that alpha will report

Use this information to determine the dollar amounts that Alpha will report on its yearend Balance Sheet for Paid in Capital Common Stock in Excess to par

  What entry will have to make upon forfeit of the discount

In the previous two months, E&P sold over $23,000 to SQU. If SQU fails to make discount threshold, what entry will E&P have to make upon forfeit of discount

  A company expects its three departments to yield the

a company expects its three departments to yield the following income for next year.dept. adept. bdept.

  Black enterprises reported the following in 000s as of

black enterprises reported the following in 000s as of december 31 2011. all accounts have normal balances. deficit

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd