SOME EXAMPLES OF VARIOUS TYPES OF FRAUD ARE MISAPPROPRIATION OF ASSETS, OVERSTATEMENT OF ASSETS OR UNDERSTATEMENT OF LIABILITIES, SIPHONING OFF OF ASSETS THROUGH TRANSACTIONS WITH AFFILIATED ENTITIES, 'KICKBACKS' AND OTHER IRREGULAR TRANSACTIONS BETWEEN OFFICERS OR EMPLOYEES OF AN ENTERPRISE AND OUTSIDE PARTIES, AND LACK OF DISCLOSURE OF SIGNIFICANT INFORMATION. MAJOR CASES OF FRAUD IN A BUSINESS ENTITY USUALLY INVOLVE COLLUSION AMONG OFFICERS AND EMPLOYEES, OR COLLUSION WITH OUTSIDE PERSONS. THE COVERUP MAY INCLUDE FALSE ACCOUNTING ENTRIES, FORGERIES, AND UNRECORDED TRANSACTIONS. MANAGEMENT SHOULD ESTABLISH AN ADEQUATE ACCOUNTING SYSTEM AND APPROPRIATE INTERNAL ACCOUNTING CONTROLS. INTERNAL CONTROLS CAN BE STRENGTHENED BY A SYSTEM OF INTERNAL AUDITING. THE EFFECTIVENESS OF THE ACCOUNTING SYSTEM AND INTERNAL CONTROLS AND THE INTEGRITY OF MANAGEMENT ARE CRUCIAL TO THE AUDITOR. MOST OF THE SIGNIFICANT FRAUD CASES PUBLICIZED IN THE FINANCIAL PRESS RESULTED FROM A BREAKDOWN IN INTERNAL CONTROL AS A RESULT OF MANAGEMENT DIRECTION, COLLUSION OF OFFICERS AND EMPLOYEES, DETERIORATION OF INTERNAL CONTROL, OR A COMBINATION OF THESE AND SIMILAR FACTORS. THEREFORE, THE CREDIBILITY AND INTEGRITY OF MANAGEMENT ARE IMPORTANT FACTORS TO ASSESS IN CONDUCTING AUDITING WORK. MANAGEMENT SHOULD BE HELD RESPONSIBLE FOR MISREPRESENTATIONS AND WITHHOLDING OF MATERIAL MATTERS FROM THE AUDITOR. AUDITORS SHOULD NOT BE HELD RESPONSIBLE WHEN THEY FOLLOW CUSTOMARY AUDITING PROCEDURES SINCE THOSE PROCEDURES DO NOT DISCLOSE DECEPTION, AND NO APPARENT REASON EXISTS TO EXPAND THE CUSTOMARY AUDITING PROCEDURES. AN EXTRACT FROM A STATEMENT ON AUDITING STANDARDS AND AN EXTRACT FROM A BOOK ON A RELATED TOPIC ARE APPENDED. (PRG)