1.
Introduction:
Financial statements: The financial statements of a company are prepared at the end of an accounting year to calculate the total liabilities, total assets, net profit or loss, and increase or decrease in cash during the year. The financial statements are used by various external and internal parties.
The practices that the company or auditors can adopt to detect the frauds that have been described.
2.
Introduction:
Financial statements: The financial statements of a company are prepared at the end of an accounting year to calculate the total liabilities, total assets, net profit or loss, and increase or decrease in cash during the year. The financial statements are used by various external and internal parties.
To explain: The effect of such errors on the financial statements.
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HORNGREN'S FINANCIAL & MANGERIAL ACCOUNT
- Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae’s brother started his own drilling company and persuaded Rae to “loan” him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well-encountered problems and the pipe were still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. “Send me over 80 joints of 5-inch pipe tomorrow, and I’ll get them back to you ASAP,” said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a “no-exception” report. Requirements Is there anything the company or the auditors could do in the future to detect this kind of…arrow_forward24. BHIEE Co. is a small entity. It has total of 5 staff including the owner: 1 owner, 2 salesman, 1 accountant, and 1 receptionist. The owner invested his resources to the business. The salesmen oversee the main source of revenues of the Company. The accountant was able to approve payment of invoices and write company checks to a relative, with whom the accountant would split the proceeds. The accountant covered up the theft with journal entries in the accounting system. The receptionist does the general office work. As an operations auditor, which of the following recommendations best suits the situation above moving forward? Group of answer choices BHIEE Co.’s owner should assign its general manager to be more effective and efficient in doing his job. BHIEE Co.’s owner should closely monitor the activities of its staff and the company’s operations. BHIEE Co.’s owner should come up with staff’s code of conduct and hire an internal auditor to review compliance. BHIEE Co.’s…arrow_forwardBradford College FraudBradford College has several sites and employs hundreds of teaching staff. The college has recently discovered a serious fraud involving false billings for part-time teaching. The fraud involved two members of staff. Noel is a clerk in the payroll office who is responsible for processing payments to part-time teaching staff. Ruth is the Head of the Business Studies department at the college campus. Part-time lecturers are required to complete a monthly claim form that lists the classes taught and the total hours claimed. These forms must be signed by their Head of Department, who sends all signed forms to Noel. Noel checks that the class codes on the claim forms are valid, that hours have been budgeted for those classes, and inputs the information into the college’s payroll package. The college has a separate personnel department that is responsible for maintaining all personnel files. Additions to the payroll must be made by a supervisor in the personnel office.…arrow_forward
- Item A. Fraud Facts: Susan Green has worked for ABC Company (“ABC”) as the executive secretary in the administrative department for over 10 years. Her apparent integrity and dedication to her work has earned her the reputation of being an outstanding employee and has resulted in increased responsibilities. Her present responsibilities include making arrangements for outside feasibility studies, maintaining client files, working with outside marketing consultants, initiating the payment process, and notifying the accounting department of all openings or closings of vendor accounts. During Susan’s first five years of employment, ABC subcontracted all of its feasibility and marketing studies through Adams and Co. This relationship was subsequently terminated because Adams and Co. merged with a larger, more expensive consulting group. After termination of Adams and Co., Susan and her supervisor selected a new firm to conduct ABC’s market research. However, Susan never informed the…arrow_forwardHide-It (HI), a family-owned business based in Tombstone, Arizona, builds custom homes with special features, such as hidden rooms and hidden wall safes. Hide-It has been an audit client for three years. You are about to sign off on a “clean” unmodified opinion on HI’s current annual financial statements when Art Hyde, the VP-Finance, calls to tell you that the Arizona Department of Revenue has seized control of a Hide-It bank account that includes about $450,000 of company funds; the account is not currently recorded in the accounting system and you had been unaware of it. In response to your questions about the origin of the funds, Art assures you that the funds, though not recorded as revenue, had been obtained legitimately. He explains that all of the money came from separately billed but unrecorded change orders to items in contracts completed before you became HI’s auditor, and before he or any members of current management became involved with the company. You subsequently…arrow_forwardGreenwor Manufacturing Company You have been hired to investigate possible fraud losses in Greenwor Manufacturing Company. Greenwor’s attorney contacted you in confidence and told you that she has had many tips indicating that Chad Wits, the CFO, is somehow stealing large sums of money from the company. Wits earns a good salary of $300,000 per year, but company employees report that he has recently purchased a $4 million house, a sail yacht worth at least $2 million, and one employee said that he spends his weekends in Las Vegas, where he loses very large sums of money on a regular basis. Some employees have seen him driving a new Maserati sports car near a local shopping mall, but he always arrives at work with a plain, aged family car.Requireda) What steps would you take to conduct your investigation?b) What information would you need to develop a fraud theory?c) Does the information you currently have provide sufficient predication for an investigation?arrow_forward
- Case 1: Fraud examination Karen, a friend of yours, recently started her own busi- ness, The Bike and Boulder Company (B&B). B&B specializes in the sales of mountain bikes and rock- climbing equipment. Karen is putting the finishing touches on her company policies and procedures. She knows you are taking a fraud class and asks you to review what she has completed thus far. You quickly notice that Karen has neglected to address fraud and fraud prevention in her policies and proce- dures. What policies and procedures would you suggest Karen implement to prevent and detect fraud at B&B?arrow_forwardIn the Why It Matters feature “Examples of Theft and FinancialReporting Frauds” at the beginning of the chapter, we introduced youto the Koss Corporation fraud. In this problem, we provide you withfurther details about that fraud. During the fall of 2009, Koss Corporation,a Wisconsin-based manufacturer of stereo headphone equipment,revealed that its vice president of finance (Sujata “Sue” Sachdeva) haddefrauded the company of approximately $31 million over a periodof at least five years. Grant Thornton LLP was the company’s auditor,and the firm issued unqualified audit opinions for the entire period in which they worked for Koss. According to reports, Sachdeva’s theftaccelerated over a period of years as follows:FY 2005 $2,195,477FY 2006 $2,227,669FY 2007 $3,160,310FY 2008 $5,040,968FY 2009 $8,485,937Q1 FY 2010 $5,326,305Q2 FY 2010 $4,917,005To give you a sense of the magnitude of the fraud, annual revenuesfor Koss Corporation are in the range of $40 to $45 million…arrow_forwardCase 1: Fraud examination Karen, a friend of yours, recently started her own business, The Bike and Boulder Company (B&B). B&B specializes in the sales of mountain bikes and rock- climbing equipment. Karen is putting the finishing touches on her company policies and procedures. She knows you are taking a fraud class and asks you to review what she has completed thus far. You quickly notice that Karen has neglected to address fraud and fraud prevention in her policies and procedure. What policies and procedures would you suggest Karen implement to prevent and detect fraud at B&B?arrow_forward
- Accounting & Finance - Auditing Question 6: Your audit firm has an advertising policy that any audit process will not take more than 20 days for any client. You start reviewing the audit files of your client ALB plc which you audit for eight years and you find the following notes. The audit team included a manager who owns 1% of the ALB’s shares. The executive partner believes that the 1% is too small and it will not affect the manager experience. Your firm offered this client a bookkeeping service for this year. One of the audit team received a high salary offer to be appointed in the client’s internal audit department as a head of department. The finance director was recently working as an auditor in your audit firm. ALB plc intends to increase its capital by issuing more shares in the stock market and the financial manager is asking your firm to manage this process. Required: Identify and explain FIVE ethical threats which arise from the above actions and for each…arrow_forward6-73. MiniScribe FRAUD As reported in the Wall Street Journal (September 11, 1989), MiniScribe, Inc., inflated its reported profits and inventory through a number of schemes designed to fool the auditors. At that time, MiniScribe was one of the major producers of disk drives for personal computers. The newspaper article reported that MiniScribe used the following techniques to meet its profit objectives: An extra shipment of $9 million of disks was sent to a customer near year-end and booked as a sale. The customer had not ordered the goods and ultimately returned them, but the sale was not reversed in the year recorded. Shipments were made from a factory in Singapore, usually by air freight. Toward the end of the year, some of the goods were shipped by cargo ships. The purchase orders were changed to show that the customer took title when the goods were loaded on the ship. However, title did not pass to the customer until the goods were received in the U.S. Returned goods were…arrow_forwardYou are a newly hired fraud examiner. You have been asked to write a preliminary report on thescenario below. The Dude Fraud CaseIn his own words, Daniel Jones was “The Dude.” With his waist-long dreadlocks, part-time rockband, and well-paid job managing a company’s online search directory—he seemed to have itall. Originally from Germany, Jones, now age 32, earned his doctorate and taught at theUniversity of Munich before coming to the United States, where he started his career incomputers. In 1996, Jones started working with the company as a director of operations for U.S.-Speech Engineering Service and Retrieval Technology—working on a new, closely guardedsearch engine tied to the company’s .net concept.The company allows employees to order an unlimited amount of software and hardware, at nocost, for business purposes. Between December 2001 and November 2002, Jones ordered or usedhis assistant and other employees (including a high school intern) to order nearly 1,700 pieces…arrow_forward
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