Ethics

ETHICS, FRAUD, AND INTERNAL CONTROL

The three topics of this chapter are closely related. Ethics is a hallmark of the accounting

profession. The principles which guide a manager’s decision making are important to all

affected. Computer ethics involves questions related to the use of technology and its social

impact.

Fraud is a serious problem for most businesses today and often technology compounds the

problem. In addition, the role of the independent auditor in the detection of fraud is often

questioned.

Because managers and accountants need to be confident that the information produced by the

accounting system is both accurate and reliable, the importance of internal control is great.

The objectives of this chapter are:

! to understand the broad issues pertaining to business ethics;

! to know why the subject of ethics is important to the study of accounting information

systems;

! to have a basic understanding of ethical issues relating to the use of information

technology;

! to be able to distinguish between management fraud and employee fraud;

! to be familiar with the common fraud techniques used in both manual systems and

computer-based systems;

! to be aware of the gap that exists between the expectations of users of financial

statements and the ability of auditors to detect fraud;

! to understand the internal control structure defined by SAS 78; and

! to recognize on a fundamental level the implications of the use of computer

technology for the internal control structure.

The Concept of Fraud

Despite the fact that the purpose of a financial statement audit

is to attest to the fairness of the financial statements prepared

by management, the pub lic and other groups often want to

blame the auditors when fraud goes undetected.

Your book does a good job of defining and discussing fraud as

it has evolved in common law. For an act to be regarded as

fraudulent, five conditions must be present:

! false representation [some...