Chapter 3 - Fraud, ethics, and internal control. This chapter presents the following content: An introduction to the need for a code of ethics and good internal controls, the accounting related fraud that can occur when ethics codes and internal controls are weak or not correctly applied, The nature of management fraud, the nature of employee fraud,. | Chapter 3 Fraud, Ethics, and Internal Control Chapter 3 An introduction to the need for a code of ethics and good internal controls The accounting related fraud that can occur when ethics codes and internal controls are weak or not correctly applied The nature of management fraud The nature of employee fraud The nature of customer fraud The nature of vendor fraud The nature of computer fraud The policies that assist in the avoidance of fraud and errors The maintenance of a code of ethics The maintenance of accounting internal controls The maintenance of information technology controls Study Objectives During the early 2000s, several companies were named in regards to fraudulent financial reporting. SO 1 An introduction to the need for a code of ethics and good internal controls WorldCom (Audit firm) Need for code of Ethics and Internal Controls When management is unethical, fraud is likely to occur. Management obligations: Stewardship. Provide accurate reports. Maintain internal controls. Enforce a code of ethics. SO 1 An introduction to the need for a code of ethics and good internal controls Need for code of Ethics and Internal Controls Fraud - theft, concealment, and conversion to personal gain of another’s money, physical assets, or information. Misappropriation of Assets - defalcation or internal theft. Misstatement of Financial Records - earnings management or fraudulent financial reporting. SO 2 The accounting related fraud that can occur when ethics codes and internal controls are weak or not correctly applied Accounting Related Fraud Fraud, three conditions must exist. SO 2 The accounting related fraud that can occur when ethics codes and internal controls are weak or not correctly applied Exhibit 3-1 The Fraud Triangle Accounting Related Fraud Categories of Accounting-Related Fraud SO 2 The accounting related fraud that can occur when ethics codes and internal controls are weak or not correctly applied Exhibit 3-2 Accounting Related Fraud Management Fraud | Chapter 3 Fraud, Ethics, and Internal Control Chapter 3 An introduction to the need for a code of ethics and good internal controls The accounting related fraud that can occur when ethics codes and internal controls are weak or not correctly applied The nature of management fraud The nature of employee fraud The nature of customer fraud The nature of vendor fraud The nature of computer fraud The policies that assist in the avoidance of fraud and errors The maintenance of a code of ethics The maintenance of accounting internal controls The maintenance of information technology controls Study Objectives During the early 2000s, several companies were named in regards to fraudulent financial reporting. SO 1 An introduction to the need for a code of ethics and good internal controls WorldCom (Audit firm) Need for code of Ethics and Internal Controls When management is unethical, fraud is likely to occur. Management obligations: Stewardship. Provide accurate reports. Maintain internal .
