Concept explainers
a.
Introduction: Fraud refers to an intended attempt to misrepresent the financial statement of an entity in order to attain some personal gain or advantage.
To explain: The management commits of fraud.
b.
Introduction: Fraud refers to an intended attempt to misrepresent the financial statement of an entity in order to attain some personal gain or advantage.
To explain: The management’s incentive to commit the fraud.
c.
Introduction: Asset misappropriation fraud refers to the fraud where third-parties or workers of the entity misuse their position for pilfering or exploitation the assets of the organization. It includes embezzlement of cash, assets stolen, and various other related losses.
Fraudulent financial reporting refers to manipulations of income earned by the management in order to have personal gains or to prevent an organization from bankruptcy or any other negative financial results.
To state: The case is related to asset misappropriation or fraudulent financial reporting.
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Chapter 2 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- Refer to Exhibit 2.1 a. What is a Ponzi scheme? b. Describe the key elements of the Bernie Madoff fraud. c. Is this fraud primarily a case of asset misappropriation or fraudulent financial reporting?arrow_forwardExplain, what types of fraud scheme is Steinhoff likely to use to commit financial statement fraud?arrow_forwardWhat advantages would motivate management to conduct fraud related to financial capital processes?arrow_forward
- Answer the following questions and give an example for each case: In which areas can the embezzlement scheme be identified? What can cause fraud to be committed in the presentation of financial statements?arrow_forwardWhich of the following factors creates an opportunity for fraud to be committed in an organization? a. Management demands financial success. b. Poor internal control. c. Commitments tied to debt covenants. d. Management is aggressive in its application of accounting rules.arrow_forwardExplain the three special characteristics of management fraud: a. The fraud is perpetrated at levels of management above the one to which internal control structures generally relate. b. The fraud frequently involves using the financial statements to create an illusion that an entity is healthier and more prosperous than, in fact, it is. c. If the fraud involves misappropriation of assets, it frequently is shrouded in a maze of complex business transactions, often involving related third parties. Please provide me a correct and clear explanations. Thank you!arrow_forward
- Fraud risk factors are events or conditions that indicateI. An incentive or pressure to perpetrate fraud.II. An opportunity to carry out the fraud.III. An attitude or rationalization that justifies the fraudulent action.Which of the following statements is true?a. I is a fraud risk factor.b. I and II are fraud risk factors.c. II and III are fraud risk factors.d. None of these is a fraud risk factor.e. I, II, and III are fraud risk factors.arrow_forward21) Which is not one of the fraud factors in the Fraud Pentagon? A. Incentive B. Pressure C. Opportunity D. Employee disenfranchisementarrow_forwardWhat is the best way to reduce financial statement fraud?arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningBusiness/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage