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8/18/2019 Rr Chapter 11
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 - 1
Fraud Auditing
Chater 11
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 22
!earning "b#ecti$e 1
%e&ine &raud and distinguish
bet'een &raudulent &inancial
re(rting and )isar(riati(n
(& assets*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - ++
yes (& Fraud
Fraudulent &inancial re(rting
isar(riati(n (& assets
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - ..
!earning "b#ecti$e 2
%escribe the &raud triangle and
identi&y c(nditi(ns &(r &raud*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 -
he Fraud riangle
ncenti$es/Pressures
"(rtunities Attitudes/ati(naliati(n
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 33
E4a)les (& is5 Fact(rs
&(r Fraudulent e(rting
Financial stability (r r(&itability is threatened by
ec(n()ic, industry, (r entity (erating c(nditi(ns
E4cessi$e ressure e4ists &(r )anage)ent t(
)eet debt re6uire)ents
Pers(nal net '(rth is )aterially threatened
ncenti$es/Pressures7
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 -
E4a)les (& is5 Fact(rs
&(r Fraudulent e(rting
here are signi&icant acc(unting esti)ates that
are di&&icult t( $eri&y
here is ine&&ecti$e ($ersight ($er &inancial
re(rting
High turn($er (r ine&&ecti$e acc(unting internal
audit, (r in&(r)ati(n techn(l(gy sta&& e4ists
"(rtunities7
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 88
E4a)les (& is5 Fact(rs
&(r Fraudulent e(rting
nar(riate (r ine&&icient c())unicati(n
and su(rt (& the entity9s $alues is e$ident
A hist(ry (& $i(lati(ns (& la's is 5n('n
anage)ent has a ractice (& )a5ing
($erly aggressi$e (r unrealistic &(recasts
Attitudes/ati(naliati(n7
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - ::
E4a)les (& is5 Fact(rs
&(r isar(riati(n (& Assets
Pers(nal &inancial (bligati(ns create ressure
t( )isar(riate assets
Ad$erse relati(nshis bet'een )anage)ent
and e)l(yees )(ti$ate e)l(yees t(
)isar(riate assets
ncenti$es/Pressures7
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 1010
E4a)les (& is5 Fact(rs
&(r isar(riati(n (& Assets
here is a resence (& large a)(unts (& cash
(n hand (r in$ent(ry ite)s
here is an inade6uate internal c(ntr(l ($er
assets
"(rtunities7
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 1111
E4a)les (& is5 Fact(rs
&(r isar(riati(n (& Assets
%isregard &(r the need t( )(nit(r (r reduce
ris5 (& )isar(riating assets e4ists
here is a disregard &(r internal c(ntr(ls
Attitudes/ati(naliati(n7
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 1+1+
Assessing the is5 (& Fraud
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 1.1.
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 11
%(cu)enting Fraud
Assess)ent
%iscussi(n
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 1313
!earning "b#ecti$e .
denti&y c(r(rate g($ernance
and (ther c(ntr(l en$ir(n)ent
&act(rs that reduce &raud ris5s*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 11
C(r(rate ?($ernance "$ersight
t( educe Fraud is5s
1* Culture (& h(nesty and high ethics
2* anage)ents res(nsibilityt( e$aluate ris5s (& &raud
+* Audit c())ittee ($ersight
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 1818
E4a)le Ele)ents &(r a C(de
(& C(nduct
"rganiati(nal c(de (& c(nduct
?eneral e)l(yee c(nduct
C(n&licts (& interest
"utside acti$ities, e)l(y)ent, and direct(rshis
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 1:1:
E4a)le Ele)ents &(r a C(de
(& C(nduct
elati(nshis 'ith clients and suliers
?i&ts, entertain)ent, and &a$(rs
ic5bac5s and secret c())issi(ns
"rganiati(n &unds and (ther assets
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2020
E4a)le Ele)ents &(r a C(de
(& C(nduct
"rganiati(n rec(rds and c())unicati(ns
%ealing 'ith (utside e(le and (rganiati(ns
Pr()t c())unicati(ns
Pri$acy and c(n&identiality
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2121
"rganiati(nal Fact(rs
C(ntributing t( is5 (& Fraud
200+ 1::8 1::.
C(llusi(n bet'eene)l(yees and
third arties
nade6uateinternalc(ntr(ls
anage)ent
($erride (& internal c(ntr(ls
.8+1++
+:8:
+1+3+3
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2222
"rganiati(nal Fact(rs
C(ntributing t( is5 (& Fraud
C(llusi(n bet'eene)l(yees and
)anage)ent
!ac5 (& c(ntr(l($er )anage)ent
by direct(rs
ne&&ecti$e (r
n(ne4istent ethics (r c()liance r(gra)
11:2+
1211 3
10 8
200+ 1::8 1::.
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2+2+
!earning "b#ecti$e
%e$el( res(nses t( identi&ied
&raud ris5s*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2.2.
es(nding t( the is5 (&
Fraud
Change the ($erall c(nduct (& the audit
t( res(nd t( identi&ied &raud ris5s*
%esign and er&(r) audit r(cedures
t( address identi&ied ris5s*
%esign and er&(r) r(cedures t(address the ris5 (& )anage)ent
($erride (& c(ntr(ls*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 22
!earning "b#ecti$e 3
ec(gnie seci&ic &raud ris5
areas and de$el( r(cedures
t( detect &raud*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2323
ates (& Fraud "ccurrence
200+ 1::8
he&t (& assets .:22
Chec5 &raud.023
E4ense acc(untabuse
+31+
Credit card &raud201+
Payr(ll &raud12 +
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 22
ates (& Fraud "ccurrence
200+ 1::8
C(n&lict (& interest 12 :
n$ent(ry the&t1111
ic5bac5s : 3
Financial re(rting&raud
+
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2828
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - 2:2:
!earning "b#ecti$e
;nderstand inter$ie' techni6ues
and (ther acti$ities a&ter &raud
is susected*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - +0+0
eth(ds (& ;nc($ering Fraud
nternal c(ntr(ls
nternal audit
@(ti&icati(n by e)l(yee Accident
An(ny)(us ti
@(ti&icati(n by cust()er
@(ti&icati(n by regulat(ry (r la' en&(rce)ent agency
@(ti&icati(n by $end(r
E4ternal audit
3
3+.
.1
+.
1:
13
12
1
.+
8+
+
.1
13
11
.
2
.
128
23
+.
8
1
(Percentages) 200 !""# !""$
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - +1+1
es(nding t( isstate)ents hat
ay Be the esult (& Fraud
hen &raud is susected, the audit(r gathers
additi(nal in&(r)ati(n t( deter)ine 'hether
&raud actually e4ists*
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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 11 -11 - +2+2
yes (& n6uiry echni6ues
n&(r)ati(nal in6uiry
Assess)ent in6uiry
nterr(gati$e in6uiry
E$aluating res(nses
!istening techni6ues
"bser$ing beha$i(ral cues
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©2008 Prentice Hall Business Publishing©2008 Prentice Hall Business Publishing Auditing 12/eAuditing 12/e Arens/Beasley/ElderArens/Beasley/Elder 11 - ++
End (& Chater 11