fraud

what is the difference between earning management and outright fraud?

it all depends on the sale and the reason and how secretive you are about it.

what 3 elements are needed to commit fraud?

pressure, rationalization, opportunity

what was the “golden age” of accounting fraud?

in 1998-2002 there were soooooo many frauds

how can a company prevent fraud?

take out opportunity

we can do this by placing internal controls.

what are the two types of internal controls?

1. preventative controls

2. detective controls

what is the difference between preventative controls and detective controls

preventative: designed to keep errors from happening in the first place

detective control: designed to detect errors or fraud that has already occurred.

examples of preventative internal controls:

separation of duties

physical control

proper authorization

examples of detective controls

report reviews

data analytics

reconciliations

internal audits

what is SOX?

the sarbanes-oxley act of 2002 they made new rules after the golden age of fraud happened. they required companies and their auditors it document and assess the effectiveness of the companies internal controls

what are the 2 biggest weaknesses to internal controls

can be overridden by top management and they are susceptible to collision.