Reference no: EM133004284

Problem i. With respect to fraud, explain the differences between (1) incentives and pressures and (2) opportunity?

Problem ii. Dan Chappelle is responsible for preparing bank reconciliation statements at Clorox Inc. Clorox has many bank accounts, including separate accounts for each major branch/regional branch, accounts for payments of salaries and dividends, and accounts kept in foreign currency for overseas divisions. Dan maintains records including bank statements and weekly bank reconciliations for each account. As part of testing internal controls, the auditor noted:

1. Auditor selected two of 12 months of bank reconciliations;
2. There were documents located as part of the control testing which contained correspondence with banks about disputed transactions between Clorox and the Bank, which have been outstanding for several months without resolution or research by Dan;
3. There were differences for some bank reconciliations and were researched by Dan and determined to relate to dishonored checks from Clorox's customers; and
4. Based on inspecting the bank reconciliation it was noted each month Dan appeared to have completed the bank reconciliation and signed off on the appropriate checklist

Based on these factors would you determine this bank reconciliation control was working effectively or not effectively?

Problem iii. What is the difference between the two types of Frauds "Misappropriation of assets" and "Fraudulent financial reporting;" and

Problem iv. Which of these two risks ("Misappropriation of assets" or "Fraudulent financial reporting) is the auditor more concerned with?