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NCJ Number: 67390 Find in a Library
Title: RESPONSIBILITY AND DETECTION IN MANAGEMENT FRAUD
Journal: CPA JOURNAL  Volume:46  Issue:5  Dated:(MAY 1976)  Pages:19-23
Author(s): H KAPNICK
Date Published: 1976
Page Count: 5
Format: Article
Language: English
Country: United States of America
Annotation: THE INDEPENDENT AUDITOR'S RESPONSIBILITY AND SOME GUIDELINES FOR DETECTING MANAGEMENT FRAUD ARE DISCUSSED.
Abstract: MANAGEMENT FRAUD STEMS FROM IMPROPER ACTIONS OF MANAGEMENT, NORMALLY ACCOMPANIED BY FALSE DOCUMENTATION OF TRANSACTIONS OR WITHHOLDING OF RELEVANT INFORMATION RESULTING IN A MATERIAL IMPACT ON THE FINANCIAL STATEMENTS AND IN FINANCIAL DETRIMENT TO SHAREHOLDERS OR CREDITORS. MANAGEMENT HAS THE RESPONSIBILITY FOR ESTABLISHING A SYSTEM OF ACCOUNTS, PROVIDING APPROPRIATE INTERNAL ADMINISTRATIVE AND ACCOUNTING CONTROLS, AND PREPARING FINANCIAL STATEMENTS THAT FAIRLY REFLECT THE COMPANY'S FINANCIAL POSITION AND RESULTS OF OPERATIONS. THE AUDITOR IS RESPONSIBLE FOR FAILURE TO DETECT FRAUD ONLY IF GENERALLY ACCEPTED AUDITING STANDARDS ARE NOT FOLLOWED. IN EXAMINING A CLIENT'S FINANCIAL STATEMENTS, HOWEVER, THE INDEPENDENT AUDITOR SHOULD BE AWARE OF THE POSSIBILITY OF FRAUD. CLUES SUGGESTING THE POSSIBILITY OF FRAUD ARE COMPANY FINANCIAL CIRCUMSTANCES THAT INCREASE THE TEMPTATIONS OF FRAUD (UNPROFITABLE VENTURES, PRESSURES TO MEET LOAN AGREEMENTS, ETC.), ARTIFICIALLY COMPLEX CORPORATE STRUCTURES AND TRANSACTIONS, AND TRANSACTIONS BETWEEN THE COMPANY AND 'RELATED PARTIES.' AUDIT PROCEDURES THAT CAN BE USED AGAINST POSSIBLE FRAUD ARE THE SELECTION OF CLIENTS WHO HAVE PROVEN TO HAVE FINANCIAL INTEGRITY, EFFECTIVE INFORMATION EXCHANGES WITH PREVIOUS AUDITORS, AUDITOR ALERTNESS TO SITUATIONS WHERE FRAUD IS LIKELY, AND CAREFUL ATTENTION TO RELATED PARTY TRANSACTIONS. FURTHER, THE AUDITOR MUST REPORT TO THE HIGHEST LEVEL OF MANAGEMENT, WHICH IS MOST LIKELY TO BE CONCERNED WITH AND TAKE ACTION IN THE EVENT OF FINANCIAL IRREGULARITIES. (RCB)
Index Term(s): Auditing standards; Audits; Crime specific countermeasures; Financial management; Fraud
Note: BASED ON AN ADDRESS BY MR. KAPNICK TO THE ANNUAL MEETING OF THE CALIFORNIA SOCIETY OF CPAS, SAN DIEGO, JUNE 23, 1975
To cite this abstract, use the following link:
http://www.ncjrs.gov/App/publications/abstract.aspx?ID=67390

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