Wiley Practitioner's Guide to GAAS 2020. Joanne M. Flood

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      1 Personal financial obligations may create pressure on management or employees with access to cash or other assets susceptible to theft to misappropriate those assets.

      2 Adverse relationships between the entity and employees with access to cash or other assets susceptible to theft may motivate those employees to misappropriate those assets. For example, adverse relationships may be created by the following:Known or anticipated future employee layoffs.Recent or anticipated changes to employee compensation or benefit plans.Promotions, compensation, or other rewards inconsistent with expectations.

      1 Certain characteristics or circumstances may increase the susceptibility of assets to misappropriation. For example, opportunities to misappropriate assets increase when there are the following:Large amounts of cash on hand or processed.Inventory items that are small in size, of high value, or in high demand.Easily convertible assets, such as bearer bonds, diamonds, or computer chips.Fixed assets that are small in size, marketable, or lacking observable identification of ownership.

      2 Inadequate internal control over assets may increase the susceptibility of misappropriation of those assets. For example, the misappropriation of assets may occur because there is the following:Inadequate segregation of duties or independent checks.Inadequate oversight of senior management expenditures, such as travel and other disbursements.Inadequate management oversight of employees responsible for assets; for example, inadequate supervision or monitoring of remote locations.Inadequate job applicant screening of employees with access to assets.Inadequate record keeping with respect to assets.Inadequate system of authorization and approval of transactions (for example, in purchasing).Inadequate physical safeguards over cash, investments, inventory, or fixed assets.Lack of complete and timely reconciliations of assets.Lack of timely and appropriate documentation of transactions, for example, credits for merchandise returns.Lack of mandatory vacations for employees performing key control functions.Inadequate management understanding of information technology, which enables information technology employees to perpetrate a misappropriation.Inadequate access controls over automated records, including controls over and review of computer systems events logs.

       Disregard for the need for monitoring or reducing risks related to misappropriation of assets.

       Disregard for internal control over misappropriation of assets by overriding existing controls or by failing to correct known internal control deficiencies.

       Behavior indicating displeasure or dissatisfaction with the company or its treatment of the employee.

       Changes in behavior or lifestyle that may indicate assets have been misappropriated.

       The belief by some government or other officials that their level of authority justifies a certain level of compensation and personal privileges.

       Tolerance of petty theft.

       Is the entry made to an unrelated, unusual, or seldom-used account?

       Is the entry made by an individual who typically does not make journal entries?

       Is the entry made at closing of the period or postclosing with little or no explanation or description?

       Do entries made during the preparation of financial statements lack account numbers?

       Does the entry contain round numbers or a consistent ending number?

       Does the account consist of transactions that are complex or unusual in nature?

       Does the account contain significant estimates and period-end adjustments?

       Has the account been prone to errors in the past?

       Has the account not been regularly reconciled on a timely basis?

       Does the account contain unreconciled differences?

       Does the account contain intercompany transactions?

       Is the account otherwise associated with an identified risk of material misstatement due to fraud?

       Discrepancies in the accounting records, including:Transactions that are not recorded in a complete or timely manner or are improperly recorded as to amount, accounting period, classification, or entity policy.Unsupported or unauthorized balances or transactions.Last-minute adjustments that significantly affect financial results.Evidence of employees’ access to systems and records inconsistent with that necessary to perform their authorized duties.Tips or complaints to the auditor about alleged fraud.

       Conflicting or missing evidential matter, including:Missing documents.Documents that appear to have been altered.Unavailability of other than photocopies or electronically transmitted documents when documents in original form are expected to exist.Significant unexplained items on reconciliations.Unusual balance sheet changes, or changes in trends or important financial statement ratios or relationships; for example, receivables growing faster than revenues.Inconsistent, vague, or implausible responses from management or employees arising from inquiries procedures.Unusual discrepancies between the entity’s records and confirmation replies.Large СКАЧАТЬ