Fraud

ACT 3142

– AUDIT II –

LECTURER : DR MAZLINA BINTI MUSTAPHA

ASSIGNMENT 1

Question 9.57 (Page 499)

GROUP MEMBERS

NOR JANNAH BINTI ABDUL AZIZ EX02821

NITHIYA A/P JAYACHANDRAN EX02831

NUR MAISARAH BINTI ZAMHURI EX02844

KASHURE DEVI A/P ATCHUTHA NAIDU EX02859

QUESTION 9.57 (PAGE 499-500)

Kashu, tolong scan soalan and paste here, Tq.

ANSWER

a) There are many fraud risk factors in this dialogue between Mint and Smith. The following are the fraud risk factors indicated in the dialogue :-

* Mint is the new CEO appointed to the SCS that has no salary. The significant for Mint’s compensation is represented by bonuses and stock option and the arrangement has been approved by SCS’s Board of Director. This may be a motivation for Mint, the new CEO to engage in fraudulent financial reporting.

* Mint’s statement to the stock analyst that SCS’s earnings would increase by 30% next year may be both an improperly aggressive and unrealistic forecast. That forecast may attract Mint to intentionally misstate certain ending balances this year that would increase the profitability of the next year.

* SCS’s audit committee may not be sufficiently objective because Green, the chair of the audit committee, hired Mint, the new CEO and they have been best friends for years.

* Mint also seems to be making all the important decision without any apparent input from other members of management or resistance from the Board of Directors. Nobody in the management or in the board would stand up to Mint.

* There were frequent disputes between Brown, the old CEO, who like Mint apparently dominated management, and the Board of Directors and Jones the predecessor auditor. This fact may indicate that an environment exists in which management will be reluctant to make any changes that the current PA firm suggests.

* Management seems satisfied with an understaffed and ineffective internal audit department. In...