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1Chapter 11 Fraud Auditing

Review Questions

11-1 Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users. Two examples of fraudulent financial reporting are accelerating the timing of recording sales revenue to increased reported sales and earnings, and recording expenses as fixed assets to increase earnings. 11-2 Misappropriation of assets is fraud that involves theft of an entitys assets. Two examples are an accounts payable clerk issuing payments to a fictitious company controlled by the clerk, and a sales clerk failing to record a sale and pocketing the cash receipts. 11-3 Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users, while misappropriation of assets is fraud that involves theft of an entitys assets. Frauds involving financial reporting are usually larger than frauds involving misappropriation of assets, usually involve top management, and do not directly involve theft of company assets. 11-4 The three conditions of fraud referred to as the fraud triangle! are "1# $ncentives%&ressures' "(# )pportunities' and "*# +ttitudes%,ationali-ation. $ncentives% &ressures are incentives of management or other employees to commit fraud. )pportunities are circumstances that allow management or employees to commit fraud. +ttitudes%,ationali-ation are indications that an attitude, character, or set of ethical values exist that allow management or employees to commit a dishonest act or they are in an environment that imposes sufficient pressure that causes them to rationali-e committing a dishonest act. 11.5 The following are example of risk factors for fraudulent financial reporting for each of the three fraud conditions.

Incentives/Pressures / The company is under pressure to meet debt covenants or obtain additional financing. Opportunities 0 $neffective oversight of financial reporting by the board of directors allows management to exercise discretion over reporting. Attitudes/Rationalization 0 Management is overly aggressive. For example, the company may issue aggressive earnings forecasts, or make extensive ac1uisitions using company stock.

11/1

11-6 The following are example of risk factors for misappropriation of assets for each of the three fraud conditions.

Incentives/Pressures / The individual is unable to meet personal financial obligations. Opportunities 0 There is insufficient segregation of duties that allows the individual to handle cash receipts and related accounting records. Attitudes/Rationalization 0 Management has disregarded the inade1uate separation of duties that allows the potential theft of cash receipts.

11-7 +uditors use several sources to gather information about fraud risks, including.

$nformation obtained from communications among audit team members about their knowledge of the company and its industry, including how and where the company might be susceptible to material misstatements due to fraud. ,esponses to auditor in1uiries of management about their views of the risks of fraud and about existing programs and controls to address specific identified fraud risks. 2pecific risk factors for fraudulent financial reporting and misappropriations of assets. +nalytical procedures results obtained during planning that indicate possible implausible or unexpected analytical relationships. 3nowledge obtained through other procedures such as client acceptance and retention decisions, interim review of financial statements, and consideration of inherent or control risks.

11-8 2+2 44 re1uires the audit team to conduct discussions to share insights from more experienced audit team members and to brainstorm! ideas that address the following. 1. 5ow and where they believe the entitys financial statements might be susceptible to material misstatement due to fraud. This should include consideration of known external and internal factors affecting the entity that might

create an incentive or pressure for management to commit fraud. provide the opportunity for fraud to be perpetrated. indicate a culture or environment that enables management to rationali-e fraudulent acts.

11/(

11-8 !ontinued" (. *. 6. 5ow management could perpetrate and conceal fraudulent financial reporting. 5ow assets of the entity could be misappropriated. 5ow the auditor might respond to the susceptibility of material misstatements due to fraud.

11-# +uditors must in1uire whether management has knowledge of any fraud or suspected fraud within the company. 2+2 44 also re1uires auditors to in1uire of the audit committee about its views of the risks of fraud and whether the audit committee has knowledge of any fraud or suspected fraud. $f the entity has an internal audit function, the auditor should in1uire about internal audits views of fraud risks and whether they have performed any procedures to identify or detect fraud during the year. 2+2 44 further re1uires the auditor to make in1uiries of others within the entity whose duties lie outside the normal financial reporting lines of responsibility about the existence or suspicion of fraud. 11-1$ The corporate code of conduct establishes the tone at the top! of the importance of honesty and integrity and can also provide more specific guidance about permitted and prohibited behavior. 7xamples of items typically addressed in a code of conduct include expectations of general employee conduct, restrictions on conflicts of interest, and limitations on relationships with clients and suppliers. 11-11 Management and the board of directors are responsible for setting the tone at the top! for ethical behavior in the company. $t is important for management to behave with honesty and integrity because this reinforces the importance of these values to employees throughout the organi-ation. 11-12 Management has primary responsibility to design and implement antifraud programs and controls to prevent, deter, and detect fraud. The audit committee has primary responsibility to oversee the organi-ations financial reporting and internal control processes and to provide oversight of managements fraud risk assessment process and antifraud programs and controls. 11-13 The three auditor responses to fraud are. "1# change the overall conduct of the audit to respond to identified fraud risks' "(# design and perform audit procedures to address identified risks' and "*# perform procedures to address the risk of management override of controls. 11-14 +uditors are re1uired to take three actions to address potential management override of controls. "1# examine 8ournal entries and other ad8ustments for evidence of possible misstatements due to fraud' "(# review accounting estimates for biases' and "*# evaluate the business rationale for significant unusual transactions.

11/*

11-15 Three main techni1ues use to manipulate revenue include. "1# recording of fictitious revenue' "(# premature revenue recognition including techni1ues such as bill/and/hold sales and channel stuffing' and "*# manipulation of ad8ustments to revenue such as sales returns and allowance and other contra accounts. 11-16 The handling of cash by individuals operating cash registers is particularly susceptible to theft. The notice your meal is free if we fail to give you a receipt! is designed to ensure that every customer is given a receipt and all sales are entered into the register, establish accountability for the sale. 11-17 The three types of in1uiry are informational, assessment, and interrogative. +uditors use informational in1uiry to obtain information about facts and details that the auditor does not have. For example, if the auditor suspects financial statement fraud involving improper revenue recognition, the auditor may in1uire of management as to revenue recognition policies. The auditor uses assessment in1uiry to corroborate or contradict prior information. $n the previous example, the auditor may attempt to corroborate the information obtained from management by making assessment in1uiries of individuals in accounts receivable and shipping. $nterrogative in1uiry is used to determine if the interviewee is being deceptive or purposefully omitting disclosure of key knowledge of facts, events, or circumstances. For example, a senior member of the audit team might make interrogative in1uiries of management or other personnel about key elements of the fraud where earlier responses were contradictory or evasive. 11-18 9hen making in1uiries of a deceitful individual, three examples of verbal cues are fre1uent rephrasing of the 1uestion, filler terms such as well! or to tell the truth,! and forgetfulness or acknowledgements of nervousness. Three examples of nonverbal cues by the individual are creating physical barriers by blocking their mouth, leaning away from the auditor, and signs of stress such as sweating or fidgeting. 11-1# 9hen the auditor suspects that fraud may be present, 2+2 44 re1uires the auditor to obtain additional evidence to determine whether material fraud has occurred. 2+2 44 also re1uires the auditor to consider the implications for other aspects of the audit. 9hen the auditor determines that fraud may be present, 2+2 44 re1uires the auditor to discuss the matter and audit approach for further investigation with an appropriate level of management that is at least one level above those involved, and with senior management and the audit committee, even if the matter might be considered inconse1uential. For public company auditors, the discovery of fraud of any magnitude by senior management is at least a significant deficiency and may be a material weakness in internal control over financial reporting. This includes fraud by senior management that results in even immaterial misstatements. $f the public company auditor decides the fraud is a material weakness, the auditors report on internal control over financial reporting will contain an adverse opinion.

11/6

: %u&tip&e Choi!e Questions Fro' C(A )*a'inations 11-2$ 11-21 11-22 a. a. a. "*# "1# "1# b. b. b. "6# "6# "1# c. "1# c. "1# d. "(#

+is!ussion Questions and (ro,&e's 11-23 -.F/R%A0-/. 1. Management has a strong interest in employing inappropriate means to minimi-e reported earnings for tax/motivated reasons. +ssets and revenues are based on significant estimates that involve sub8ective 8udgments and uncertainties that are hard to corroborate. The company is marginally able to meet exchange listing and debt covenant re1uirements. 2ignificant operations are located and conducted across international borders in 8urisdictions where differing business environments and cultures exist. There are recurring attempts by management to 8ustify marginal or inappropriate accounting on the basis of materiality. The companys financial performance is threatened by a high degree of competition and market saturation. a. FRA1+ C/.+-0-/. $ncentives%&ressures

(.

)pportunities

*.

$ncentives%&ressures

6.

)pportunities

;.

+ttitudes%,ationali-ation

<.

$ncentives%&ressures

11-24

b.

The purpose of the audit teams brainstorming session is for the audit team to exchange ideas about how and where they believe the entitys financial statements might be susceptible to material misstatement due to fraud, how management could perpetrate and conceal fraudulent financial reporting, and how assets of the entity could be misappropriated. The brainstorming meeting should ordinarily involve the key members of the audit team, ranging from audit staff members to partners on the engagement. This meeting would include audit team members

11/;

11-24 !ontinued" located in other offices who work on the engagement as well as audit specialists, such as tax or $T specialists who work on the audit engagement. The two staff members on the engagement are 8ust as responsible for engaging in the exchange of ideas as other members of the engagement team. 9hile the two new staff accountants may not be familiar with engagement specifics, they do provide a fresh perspective of possible ways management might engage in fraud. More importantly, they will benefit from hearing the exchange of ideas from other members of the audit team. That should help heighten their professional skepticism as they perform the audit. The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Thus, the auditors detection responsibility for fraud is no different from the auditors detection responsibility for errors.

c.

d.

11-25

a.
+)F-C-).C2 R)C/%%).+A0-/. &renumbered admission tickets should be issued upon payment of the admission fee. )ne clerk "hereafter referred to as the cash receipts clerk# should collect admission fees and issue prenumbered tickets. The other clerk "hereafter referred to as the admission clerk# should authori-e admission upon receipt of the ticket or proof of membership. The admission clerk should retain a portion of the prenumbered admission ticket "admission ticket stub#. +dmission ticket stubs should be reconciled with cash collected by the treasurer each day. The cash receipts should be recorded by the cash receipts clerk daily on a permanent record that will serve as the first record of accountability. =ash should be deposited at least once each day.

1.

There is no basis for establishing the documentation of the number of paying patrons. There is no segregation of duties between persons responsible for collecting admission fees and persons responsible for authori-ing admission. +n independent count of paying patrons is not made. There is no proof of accuracy of amounts collected by the clerks. =ash receipts records are not promptly prepared.

(.

*.

6. ;.

<.

=ash receipts are not promptly deposited. =ash should not be left undeposited for a week.

11/<

11-25 !ontinued"
+)F-C-).C2 >. There is no proof of the accuracy of amounts deposited. R)C/%%).+A0-/. +uthenticated deposit slips should be compared with daily cash receipts records. ?iscrepancies should be promptly investigated and resolved. $n addition, the treasurer should establish policy that includes a review of cash receipts. The treasurer should issue a signed receipt for all proceeds received from the cash receipts clerk. These receipts should be maintained and should be periodically checked against cash receipts and deposit records.

@.

There is no record of the internal accountability for cash.

b. c.

+ll of the deficiencies increase the likelihood of misappropriation of assets, by allowing individuals access to cash receipts or failing to maintain ade1uate records to establish accountability for cash receipts. The deficiencies have less of an effect on the likelihood of fraudulent financial reporting than they do for misappropriation of assets. The first four deficiencies increase the likelihood of fraudulent financial reporting for reported revenues due to the lack of ade1uate records to establish the number of patrons. a. b. c. 7rror. $nternal verification of invoice preparation and posting by an independent person. Test clerical accuracy of sales invoices. Fraud. The prelisting of cash receipts should be compared to the postings in the accounts receivable master file and to the validated bank deposit slip. Trace cash received from prelisting to cash receipts 8ournal. =onfirm accounts receivable. 7rror. Ase of prenumbered bills of lading that are periodically accounted for. Trace a se1uence of prenumbered bills of lading to recorded sales transactions. =onfirm accounts receivable at year/end. 7rror. Bo merchandise may leave the plant without the preparation of a prenumbered bill of lading. Trace credit entries in the perpetual inventory records to bills of lading and the sales 8ournal. =onfirm accounts receivable at year/end. 11/>

11-26

1.

(.

a. b. c.

*.

a. b. c.

6.

a. b. c.

11-26 !ontinued" ;. a. b. c. <. a. b. c. 7rror. $nternal review and verification of account classification by an independent person. Test accuracy of invoice classification. 7rror. )nline sales are supported by shipping documents and approved online customer orders. Trace sales 8ournal or listing entries to supporting documents for online sales, including sales invoices, shipping documents, sale orders, and customer orders. 7rror. 2ales invoices are prenumbered, properly accounted for in the sales 8ournal, and a notation on the invoice is made of entry into the sales 8ournal. +ccount for numerical se1uence of invoices recorded in the sales 8ournal, watching for duplicates. =onfirm accounts receivable at year/end. Fraud. +ll payments from customers should be in the form of a check payable to the company. Monthly statements should be sent to all customers. Trace from recorded sales transactions to cash receipts for those sales' confirm accounts receivable balances at year/ end.

>.

a. b. c.

@.

a. b. c.

11-27

a.

b.

The lack of separation of duties was the ma8or deficiency that permitted the fraud for +ppliance ,epair and 2ervice =ompany. Cyders has responsibility for opening mail, prelisting cash, updating accounts receivable, and authori-ing sales allowances and write/ offs for uncollectible accounts. $t is easy for Cyders to take the cash before it is prelisted and to charge off an accounts receivable as a sales allowance or as a bad debt. The benefit of prelisting cash is to immediately document cash receipts at the time that they are received by the company. +ssuming all cash is included on the prelisting, it is then easy for someone to trace from the prelisting to the cash receipts 8ournal and deposits. Furthermore, if a dispute arises with a customer, it is easy to trace to the prelisting and determine when the cash was actually received. The prelisting should be prepared by a competent person who has no significant responsibilities for accounting functions. The person should not be in a position to withhold the recording of sales, ad8ust accounts receivable or sales for credits, or ad8ust accounts receivable for sales returns and allowances or bad debts.

11/@

11-27 !ontinued" c. 2ubse1uent to the prelisting of cash, it is desirable for an independent person to trace from the prelisting to the bank statement to verify that all amounts were deposited. This can be done by anyone independent of whoever does the prelisting, or prepares or makes the deposit. + general rule that should be followed for depositing cash is that it should be deposited as 1uickly as possible after it is received, and handled by as few people as possible. $t is, ideally, the person receiving the cash that should prepare the prelisting and prepare the deposit immediately afterward. That person should then deposit the cash in the bank. +ny unintentional errors in the preparation of the bank statement should be discovered by the bank. The authenticated duplicate deposit slip should be given to the accounting department who would subse1uently compare the total to the prelisting. 9hen an independent person prepares the bank reconciliation, there should also be a comparison of the prelisting to the totals deposited in the bank. +ny money taken before the prelisting should be uncovered by the accounting department when they send out monthly statements to customers. =ustomers are likely to complain if they are billed for sales for which they have already paid. Thus, any pocketing of cash should be detected by customer complaints, as long as customer complaints are directed to someone other than individuals involved in prelisting cash.

d.

11-28

a.
+)F-C-).C-)3 4-5)42 %-330A0)%).03 Bonexistent or incompetent employees may be hired at the foremanDs option. 7mployees or nonexistent employees may be paid at rates that are higher than their skill warrants. ?ishonest or un1ualified employees may be hired. 7mployees may report and be paid for time that they did not work. Misstatements made by the payroll clerks in favor of employees would likely not be discovered. The chief accountant could prepare, sign, and cash an extra payroll check without detection.

1.

The foreman has the ability to hire employees and enter their names into the pay system with no other approval. The foreman may make changes to salary rates without approval of company management. Bo investigation of new employees to determine background experience and dependability is performed. Bo control exists over time cards and the completion thereof. Bo review or internal verification of the amount on the payroll checks is performed. &ayroll checks are not prenumbered or controlled by the payroll clerks.

(.

*.

6. ;.

<.

11-28 !ontinued" 11/4

b.

?eficiencies 1, (, 6, ;, and < increase the likelihood of fraud involving misappropriation of assets. Fraud involving misappropriation of assets is relatively common for payroll, although the amounts are often not material. Fraudulent financial reporting involving payroll is less likely. The auditor must conduct the audit to detect errors and fraud, including embe--lement, that are material to the financial statements. $t is more difficult to discover embe--lements than most types of errors, but the auditor still has significant responsibility. $n this situation, the deficiencies in internal control are such that it should alert the auditor to the potential for fraud. )n the other hand, the fraud may be immaterial and therefore not be of ma8or concern. The auditor of a public company must also consider the impact of noted deficiencies when issuing the auditors report on internal control over financial reporting. 9hen noted deficiencies are considered to be material weaknesses, whether individually or combined with other deficiencies, the auditors report must be modified to reflect the presence of material weaknesses. The following deficiencies in internal control exist. 1. (. *. The person who reconciles the bank account does not compare payees on checks to the cash disbursements 8ournal. The president signs blank checks, thus providing no control over expenditures. Bo one checks invoices to determine that they are cancelled when paid.

11-2#

a.

b.

c.

To uncover the fraud, the auditor could perform the following procedures. 1. (. =omparison of payee on checks to cash disbursements 8ournal. Follow up all outstanding checks that did not clear the bank during the engagement until they clear the bank. =ompare payee to cash disbursements 8ournal.

11/1E

11-3$

a.
a. FRA1+6 1. (. *. 6. ;. <. >. Fes Fes Fes Fes Fes Fes Bo G ,. 02() /F FRA1+ Fraudulent financial reporting Misappropriation of assets Fraudulent financial reporting Misappropriation of assets Fraudulent financial reporting Misappropriation of assets B%+

Fraud involves intent. The circumstances suggest that there was no intent on the part of Franklin to be deceptive. $f the purpose of omitting the footnote was to deceive the bank, then this case would represent fraudulent financial reporting.

11-31

1.

a. b.

c. (. a. b. c. *. a. b. c.

There may be unrecorded cash disbursement transactions. Hecause the transactions relate to cash disbursements, the cash account will be affected. The accounts payable account may be misstated if the disbursement is the payment on an account. $f the disbursement is for the direct payment of an expense or is related to the purchase of assets, then expense or asset accounts will be affected. &ayments on other liability accounts would impact those liability accounts. 7xisting transactions are recorded "completeness#. There may be fictitious accounts receivable accounts included in the master file. +ccounts receivable and sales are likely to be affected by fictitious receivables. +mounts included exist "existence#. Management may have manipulated key assumptions so that pension expense and pension liability amounts would be lower. &ension expense and pension liability accounts are likely to be affected. +mounts included are stated at the correct values "+ccuracy#.

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11-31 !ontinued" 6. a. The client may have shipped and recorded large amounts of goods close to year end to third parties who may hold the goods on consignment or who have full rights of return. These shipments were made to record a fictitious sale and related receivable. +ccounts receivable and sales and the related costs of goods sold and ending inventory would be affected by this activity. ,ecorded amounts existed "occurrence#. +ssets that were misappropriated may be concealed by recording purchase transactions using non/standard, fictitious vendor numbers. +ccounts payable would be overstated and the related asset account would be increased by the unauthori-ed transaction. ,ecorded amounts existed "occurrence#. 2ales may be fictitiously recorded before any goods were shipped. 2ales and accounts receivable. ,ecorded amounts existed "occurrence#.

b. c. ;. a. b. c. <. a. b. c. : Case 11-32 a.

There are many fraud risk factors indicated in the dialogue. +mong the fraud risk factors are the following. + significant portion of Mints compensation is represented by bonuses and stock options. +lthough this arrangement has been approved by 2=2s Hoard of ?irectors, this may be a motivation for Mint, the new =7), to engage in fraudulent financial reporting. Mints statement to the stock analysts that 2=2s earnings would increase by *EI next year may be both an unduly aggressive and unrealistic forecast. That forecast may tempt Mint to intentionally misstate certain ending balances this year that would increase the profitability of the next year. 2=2s audit committee may not be sufficiently ob8ective because Creen, the chair of the audit committee, hired Mint, the new =7), and they have been best friends for years. )ne individual, Mint, appears to dominate management without any compensating controls. Mint seems to be making all the important decisions without any apparent input from other members of management or resistance from the Hoard of ?irectors.

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11-32 !ontinued"

There were fre1uent disputes between Hrown, the prior =7), who like Mint apparently dominated management and the Hoard of ?irectors, and Jones, the predecessor auditor. This fact may indicate that an environment exists in which management will be reluctant to make any changes that 3ent suggests. Management seems satisfied with an understaffed and ineffective internal audit department. This situation displays an inappropriate attitude regarding the internal control environment. Management has failed to properly monitor and correct a significant deficiency in its internal controlKthe lack of segregation of duties in cash disbursements. This disregard for the control environment is also a risk factor. $nformation about anticipated future layoffs has spread among the employees. This information may cause an increase in the risk of material misstatement arising from the misappropriation of assets by dissatisfied employees.

b.

3ent has many misconceptions regarding the consideration of fraud in the audit of 2=2s financial statements that are contained in the dialogue. +mong 3ents misconceptions are the following. 3ent states that the auditor does not have specific duties regarding fraud. $n fact, an auditor has a responsibility to specifically assess the risk of material misstatement due to fraud and to consider that assessment in designing the audit procedures to be performed. 3ent is not concerned about Mints employment contract. 3ent should be concerned about a =7)s contract that is based primarily on bonuses and stock options because such an arrangement may indicate a motivation for management to engage in fraudulent financial reporting. 3ent does not think that Mints forecast for (E1E has an effect on the financial statement audit for (EE4. 5owever, 3ent should consider the possibility that Mint may intentionally misstate the (EE4 ending balances to increase the reported profit in (E1E. 3ent believes the audit programs are fine as is. +ctually, 3ent should modify the audit programs because of the many risk factors that are present in the 2=2 audit. 3ent is not concerned that the internal audit department is ineffective and understaffed. $n fact, 3ent should be concerned that 2=2 has permitted this situation to continue because it represents a risk factor relating to misstatements arising from fraudulent financial reporting and%or the misappropriation of assets.

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11-32 !ontinued"

3ent states that an auditor provides no assurances about fraud because that is managements 8ob. $n fact, an auditor has a responsibility to plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. 3ent is not concerned that the prior years material weakness in internal control has not been corrected. 5owever, 3ent should be concerned that the lack of segregation of duties in the cash disbursements department represents a risk factor relating to misstatements arising from the misappropriation of assets. $f the client was a publicly traded company, the presence of an uncorrected material weakness would significantly affect the auditors report on internal control over financial reporting. 3ent does not believe the rumors about big layoffs in the next month have an effect on audit planning. $n planning the audit, 3ent should consider this a risk factor because it may cause an increase in the risk of material misstatement arising from misappropriation of assets by dissatisfied employees.

c.

2+2 44 re1uires that auditors document the following matters related to the auditors consideration of material misstatements due to fraud. The discussion among engagement team personnel in planning the audit about the susceptibility of the entitys financial statements to material fraud. &rocedures performed to obtain information necessary to identify and assess the risks of material fraud. 2pecific risks of material fraud that were identified, and a description of the auditors response to those risks. ,easons supporting a conclusion that there is not a significant risk of material improper revenue recognition. ,esults of the procedures performed to address the risk of management override of controls. )ther conditions and analytical relationships that indicated that additional auditing procedures or other responses were re1uired, and the actions taken by the auditor. The nature of communications about fraud made to management, the audit committee, or others. +fter fraud risks are identified and documented, the auditor should evaluate factors that reduce fraud risk. The auditor should then develop appropriate responses to the risk of fraud.

11/16

11-33 7 AC4 (ro,&e' a. b. c. The invoice amount column totals L(>@,<61.**. There are no exceptions in the calculation of unit cost x 1uantity. "=reate a filter with the expression AnitM=ost G Nuantity OP $nvoiceM+mount.# There are three items where the unit cost exceeds L1EE "product Q E4E;@6E>(, E4E;@;*((, and E4EE@1EE1#. 2ee the following printout. "Filter used Anit =ost P1EE.#
by: ACL Educational Edition P+*( * ,#A )%)- &E (*+. * 090314022 41 11423 090313322 29 11132 090011001 3 10134 23 04/10/2009 14:10:33 ot !or Co""ercial #$e % &*%CE.A/) # %).C*0) 2123'10 123'10 3994'20 132'10 442'40 133'10 11319'40 442'40

Page 1 Produced with ACL % &'(A)E % & * 10/21/2002 12 10/21/2002 22 04/09/2002

d. e.

f.

The three vendors with the largest total dollars for (EE( were. vendor Qs 1EE(;, 116>;, and 1(1*E. "2ummari-e by vendor number, then Nuick 2ort to find the largest three.# The following amounts are over L1;,EEE. vendor Q1EE(; for L;<,><>.(E, vendor Q116>; for L(E,*@<.14, and vendor Q1(1*E for L1;,666.@E. RFilter used is "S7B?),MB) T 1EE(;! ), S7B?),MB) T 116>;! ), S7B?),MB) T 1(1*E!# +B? $BS)$=7M+M)ABT P 1;EEE.U 2ee the following printout. "Filter, then print report#. Total transactions for vendor Q1E1*6 T L((.<1@.<(. "7dit filter to include only vendor Q1E1*6 and use Total command#

Page 1 04/10/2009 13:43:19 Produced with ACL by: ACL Educational Edition - ot !or Co""ercial #$e % &'.(A)E % &'. * P+*( * ,)- &E (*+. * % &*%CE.A/*# ) # %)C*0) 09/29/2002 11/12/2002 04/09/2002 09/30/2002 02/14/2002 10/13/200233 030303343 0302303 090011001 010331340 032414403 040102094 100 431 3 221 113 214 1240 10134 10134 10134 10134 10134 13440 113'00 11113'34 442'40 1123'41 341'20 11041'20 33414'12 1'13 41'23 133'10 4'34 4'11 31'20 234'00

11/1;

: -nternet (ro,&e' 3o&ution8 9rainstor'ing A,out Fraud Ris:s 11-1 2+2 Bo. 44 re1uires auditors to conduct a brainstorming session to discuss the potential for fraud and how the auditor might respond to the risk of fraud. The standard does not provide a great deal of guidance on how this brainstorming session should take place. ,ead + &rimer for Hrainstorming Fraud ,isks! Rhttp.%%www.aicpa.org%pubs%8ofa%dec(EE*%beasley.htmU by Mark Heasley and Creg Jenkins published in the ?ecember (EE* issue of Journal of Accountancy. +fter you read the article answer the following 1uestions. 1. 9hat are three common pitfalls that should be avoided during brainstorming sessionsV Answer8 =ommon pitfalls of brainstorming include group domination, social loafing, groupthink and groupshift. 7ach of these problems can generally be avoided through ade1uate planning and session facilitation. (. 9hat are three important techni1ues to improve the effectiveness of a brainstorming sessionV Answer8 The following techni1ues can improve the effectiveness of a brainstorming session. assign homework to participants, establish ground rules for everyone to follow, set the proper tone so that everyone is comfortable, allow no criticism of ideas during the idea generation phase, encourage participants to generate as many ideas as possible, give credit to the group for the work, and manage the group si-e and composition to maximi-e the sessions effectiveness.
".ote. $nternet problems address current issues using $nternet sources. Hecause $nternet sites are sub8ect to change, $nternet problems and solutions may change. =urrent information on $nternet problems is available at www.pearsonhighered.com%arens.#

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