ACC 403 Chapter 6

What is employee fraud?

The use of fraudulent means to take money or other property from an employer, also known as misappropriation of assets.

What is the fraud triangle?

A model that explains the three elements that lead to fraud: opportunity, pressure, and rationalization.

Why is skepticism important in cash audits?

Employee fraud can lead to material misstatements in financial statements, necessitating a skeptical approach.

What are common red flags of employee fraud?

Indicators that may suggest fraudulent activity, though they can be difficult for auditors to observe.

What is a strong control environment?

A workplace culture that emphasizes ethical behavior and compliance, helping to prevent fraud.

What role does segregation of duties play in fraud prevention?

It ensures that no single individual has control over all aspects of a financial transaction, reducing the risk of fraud.

What is a cash receipts journal?

A record detailing all cash deposits and debit entries related to cash.

What is a cash disbursements journal?

A record detailing all cash payments and credit entries related to cash.

What is the purpose of a bank reconciliation?

To compare the book cash balance to the bank cash balance to identify discrepancies.

What does a bank statement show?

It provides a summary of cash activity for a specific period.

What are substantive procedures in auditing?

Audit procedures that provide evidence about the accuracy of financial statements.

What is the significance of confirmation in auditing?

It involves verifying account balances and transactions directly with third parties to ensure accuracy.

What is the importance of management reports in cash auditing?

They provide essential data for assessing cash transactions and identifying potential fraud.

What is the impact of control violations in fraud prevention?

They can serve as early indicators of potential fraud within an organization.

What is the role of auditors in assessing fraud risk?

Auditors must consider various questions and factors to evaluate the likelihood of fraud occurring.