Chp. 5: Fraud, Internal Control, and Cash

When operating effectively, internal controls can…

improve operations, enhance the reporting of financial and nonfinancial information, and enable compliance with laws and regulations.

A fraud is generally defined as an attempt to:

deceive others for personal gain.

Employee fraud is often grouped into three categories:

corruption, asset misappropriation, and financial statement fraud.

Corruption involves:

misusing one’s position for inappropriate personal gain.

Asset misappropriation is, quite simply…

theft (embezzlement).

Financial statement fraud involves:

misreporting amounts in the financial statements, usually to portray more favorable financial results than what actually exist.

Financial statement fraud occurs _____ but causes the greatest losses.

infrequently

In comparison to financial statement fraud, which does not happen often (but incurs the greatest losses), asset misappropriation is:

more frequent but tends to involve smaller amounts.

Research has found three factors exist when fraud occurs:

opportunity, incentive, and rationalization