This paper focuses on the following 6 questions: 1. Despite legislative attempts to reduce corporate fraud, incidents of corporate fraud continue to occur. Based on your Internet scan, evaluate the factors that contribute to corporate fraud indicating the ease of management's ability to cover it up. 2. When corporate fraud is committed, assess the impact to the auditing profession and the firm conducting the audit giving consideration to how professional liability can be minimized when fraud is revealed to the shareholders and public. 3. Based on the Internet scan conducted, discuss how companies can use IT systems to create fraud and how IT auditors need to use healthy skepticism when executing the audit procedures in these areas. 4. Assess corporate management's responsibility for preventing and detecting IT fraud versus the IT auditor's responsibility suggesting how each can work collaboratively to minimize the risk of occurrence. 5. Assume that you are an IT auditor responsible for conducting the IT audit of a publicly traded company. During your audit procedures, you determine that better controls need to be implemented over the IT systems to minimize risks. The company's senior management team indicates to you that resources are constrained and they cannot afford to invest in expensive software to improve controls. Assess how you would respond and what your recommendation would be based on the resource constraints. 6. Based on the scenario above, indicate the specific circumstance in which you would determine that the potential risk and professional liability are too high and discontinue your audit services.
IT Fraud
Evaluate the factors that add to corporate fraud
The business fraud can be credited to conditions emerging from deceptive monetary reporting and misappropriation of possessions. These conditions are 3 and all 3 features of the fraud triangle have to exist for fraud to take place. Management or staff members have to have the reward or pressure to dedicate fraud, see the opportunity emerge and have the ability to justify the occasion.
Incentive/Pressure
Management or perhaps others in the workforce will have benefits or conditions of pressure to carry out fraud. If the choice is made by management to publish illegal monetary statements, the most typical reason for this will be threat by financial, market or entity operating conditions to the monetary security and productivity of the business. Extreme pressure is put on management to satisfy the projection made by industry experts, internal company projections or to pay back loans (Fox School of Business, 2009). The misappropriation of business assets might be done due to individual monetary pressure such as home mortgage, or a non-sharable trouble such as substance abuse or gambling loans (Wells 2007).
Opportunities
The misstatements of monetary statements take place when the opportunity to do so exists. In sectors where considerable judgments and projections are included, the monetary statements of these businesses can be manipulated. The opportunity of theft exists in all business, however the honesty and integrity of the workforce determines if fraud will actually take place. As soon as there is accessibility to money, stock or other useful possessions, workers will capitalize on the opportunity. If a company does not have appropriate internal controls and tasks are not appropriately set apart, the opportunity to abuse possessions considerably rises (Fox School of Business, 2009).
Attitudes/Rationalization
The attitude of upper management towards financial reporting sets the tone of the company. If there are lack of ethical values within a company, management and staff members could be in an environment that triggers them to justify carrying out a dishonest act. If upper management shows neglect for the financial reporting procedures, regularly publishes excessively positive projections, or become obsessed with living up to market expectations, deceitful reporting is most likely (Fox School of Business, 2009).
The impact to the auditing profession and the firm conducting the audit
Auditors are anticipated to adhere to specific obligations, efficiency and reporting requirements. Auditors are needed to be qualified and capable in order to perform the audit. Professional skepticism and expert judgment are fundamental obligations of an auditor throughout the whole course of the audit. The influence on the exterior auditor would be that he would have to be under the fiduciary liability to see to it that the general public and investors can be comfortable with the reports released by the subject business and their third-party viewpoint is crucial for analysis of monetary efficiency of business. External auditors would be under pressure to encourage corporate governance by making certain the subject business's reports are precise, real and are an unbiased representation of the business's condition.
How companies can use IT systems to create fraud and how IT auditors need to use healthy scepticism when executing the audit procedures in these areas.
Automated info systems have actually become an important part in the daily operations of modern-day companies. This has actually permitted even more work to be finished with less individuals and a greater level of information to be incorporated into the work with the sophisticated capabilities of computer systems. It is essential for business to take the essential preventative measures required in shielding their systems and picking the correct internal controls for information technology as well as audit reporting. This consists of examining the efficiency of their internal controls. This is usually done by asking the following questions:.
* Is the design and operation of the internal control system current with technological innovations?
* Is the internal control system and reporting in compliance with Sarbanes-Oxley Act of 2002?
* Does the existing system determine existing controls which are mishandled, redundant, and expensive?
* Is the internal control system and showing enhanced performance and overall company efficiency?
The responses to these points must be evaluated by management to guarantee that the criterion of the information technology is not only regulated but also controlled.
An audit report has 3 general features which are made use of to report a business's financial statements. These reports show whether the financial statements exist in conformity with internationally accepted accounting concepts. Auditors utilize their reports to highlight any uncommon elements of the audit evaluation, and the reports can be utilized to connect helpful details to decision makers that might not appear on the face of the financial statements. Internal reporting choices are essential in keeping regulatory authorities, investors, and staff members notified, and the format needs to be easy to make it comprehensible for the managers and investors. 2 choices are offered to the auditor for reports on the business's financial statements and internal control over reporting. One choice is to have 2 different reports; the fairness of the business's financial statements and the report on internal control over financial reporting. When utilizing this choice each report need to describe the standard responsibility and viewpoint shared in the various other reports. If the 2nd choice is chosen in providing the 2 reports, the reports ought to be incorporated. The incorporated report shares an unqualified viewpoint on the financial statements, management's evaluation of the efficiency of internal control over financial reporting ought to likewise be included and the efficiency of internal control over financial reporting (Louwers, Ramsey, Sinason, & Strawser, 2007).
Corporate management's responsibility for preventing and detecting IT fraud vs. The IT auditor's responsibility
The excellence of a company is figured out by how efficient its managers are in handling risks. For that reason, getting efficient risk management assists to shield the business from losses occurring due to bad accounting practices in addition to illegal tasks. Utilizing great controls safeguard managers from liabilities that might develop when accrediting financial statements utilized in yearly reports since when these reports are provided, they are likewise a representation of the business's internal controls. The internal control procedure starts with management as well as the attitude that management depicts with the business. Manager responsibilities consist of carrying out the policies and treatments utilized within the business, these policies and treatments are likewise utilized to develop the structure which is discovered within the internal control environment.
The main goal of the audit is to reveal a viewpoint on the financial statements. The duties of auditors are revenue recognition disclosure requirements, appraisal and appropriation related-party, deals liabilities, consisting of contingent liabilities; and going-concern status. An auditor is an independent professional who is certified to audit a business's financial statements. The auditor in charges of following generally accepted auditing standards (GAAS) that lead the efficiency of audits in collecting and assessing and examining the proof, and in releasing an audit report which contains the auditor's conclusion shared through viewpoint on the financial statements. Instead of developing brand-new information, the main goal of auditing is to include creditability to the financial statements prepared by management.
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