Discussion Questions on Ethics, Fraud, and Internal Control.

By -

Discussion Questions

1. Distinguish between ethical issues and legal issues.

2. Some argue against corporate involvement in socially responsible behavior because the costs incurred by such behavior place the organization at a disadvantage in a competitive market. Discuss the merits and flaws of this argument.

3. Although top management’s attitude toward ethics sets the tone for business practice, sometimes

it is the role of lower-level managers to uphold a firm’s ethical standards. John, an operations-level manager, discovers that the company is illegally dumping toxic materials and is in violation of environmental regulations. John’s immediate super- visor is involved in the dumping. What action should John take?

4. When a company has a strong internal control structure, stockholders can expect the elimination of fraud. Comment on the soundness of this statement.

5. Distinguish between employee fraud and manage- ment fraud.

6. The estimates of losses annually resulting from computer fraud vary widely. Why do you think obtaining a good estimate of this figure is difficult?

7. How has the Sarbanes-Oxley Act had a significant impact on corporate governance?

8. Discuss the concept of exposure and explain why firms may tolerate some exposure.

9. If detective controls signal error flags, why shouldn’t these types of controls automatically make a correction in the identified error? Why are corrective controls necessary?

10. Discuss the nonaccounting services that external auditors are no longer permitted to render to audit clients.

11. Discuss whether a firm with fewer employees than there are incompatible tasks should rely more heavily on general authority than specific authority.

12. An organization’s internal audit department is usually considered an effective control mechanism for evaluating the organization’s internal control structure. The Birch Company’s internal auditing function reports directly to the controller. Comment on the effectiveness of this organizational structure.

13. According to SAS 78/COSO, the proper segregation of functions is an effective internal control procedure. Comment on the exposure (if any) caused by combining the tasks of paycheck preparation and distribution to employees.

14. Explain the five conditions necessary for an act to be considered fraudulent.

15. Distinguish between exposure and risk.

16. Explain the characteristics of management fraud.

17. The text identifies a number of personal traits of managers and other employees that might help uncover fraudulent activity. Discuss three.

18. Give two examples of employee fraud, and explain how the thefts might occur.

19. Discuss the fraud schemes of bribery, illegal gratu- ities, and economic extortion.

20. Distinguish between skimming and cash larceny.

21. Distinguish between a shell company fraud and pass through fraud.

22. Why are the computer ethics issues of privacy, security, and property ownership of interest to accountants?

23. A profile of fraud perpetrators prepared by the Association of Certified Fraud Examiners revealed that adult males with advanced degrees commit a disproportionate amount of fraud. Explain these findings.

24. Explain why collusion between employees and management in the commission of a fraud is difficult to both prevent and detect.

25. Because all fraud involves some form of financial misstatement, how is fraudulent statement fraud different?

26. Explain the problems associated with lack of auditor independence.

27. Explain the problems associated with lack of director independence.

28. Explain the problems associated with questionable executive compensation schemes.

29. Explain the problems associated with inappropriate accounting practices.

30. Explain the purpose of the Public Company Accounting Oversight Board.

31. Why is an independent audit committee important to a company?

32. What are the key points of the ‘‘Issuer and Management Disclosure’’ of the Sarbanes- Oxley Act?

33. In this age of high technology and computer-based information systems, why are accountants concerned about physical (human) controls?

Comments

Post a Comment

Popular posts from this blog

The Conversion Cycle:The Traditional Manufacturing Environment

By -
Image
The Traditional Manufacturing Environment The conversion cycle consists of both physical and information activities related to manufacturing products for sale. The context-level data flow diagram (DFD) in Figure 7-1 illustrates the central role of the conversion cycle and its interactions with other business cycles. Production is triggered by customer orders from the revenue cycle and/or by sales forecasts from marketing. These inputs are used to set a production target and prepare a production plan, which drives production activities. Purchase requisitions for the raw materials needed to meet production objectives are sent to the purchases procedures (expenditure cycle), which prepares purchase orders for vendors. Labor used in production is transmitted to the payroll system (expenditure cycle) for payroll processing. Manufacturing costs associated with intermediate work-in-process and finished goods (FG) are sent to the general ledger (GL) and financial reporting system. Dependin
Read more

The Revenue Cycle:Manual Systems

By -
Image
Manual Systems The purpose of this section is to support the system concepts presented in the previous section with models depicting people, organizational units, and physical documents and files. This section should help you envision the segregation of duties and independent verifications, which are essential to effective internal control regardless of the technology in place. In addition, we highlight inefficiencies intrinsic to manual systems, which gave rise to modern systems using improved technologies. SALES ORDER PROCESSING The system flowchart in Figure 4-12 shows the procedures and the documents typical to a manual sales order system. In manual systems, maintaining physical files of source documents is critical to the audit trail. As we walk through the flowchart, notice that in each department, after completion of the assigned task, one or more documents are filed as evidence that the task was completed. Sales Department The sales process begins with a customer cont
Read more

Nassi-Shneiderman charts

By -
Image
Nassi-Shneiderman charts 56.1 Purpose Nassi-Shneiderman charts were developed by Nassi and Shneiderman as an alternative to traditional logic flowcharts. Their intent was to provide a structured, hierarchical, graphical view of the flow of logic through a program, a routine, a module, or a process. Nassi-Shneiderman charts are used to document, plan, and design detailed program logic. 56.2 Strengths, weaknesses, and limitations A properly prepared Nassi-Shneiderman chart can illustrate the flow of logic through a module or routine at a glance. Nassi-Shneiderman charts are useful for describing or planning relatively small modules, routines, or processes. They can be used to clearly show nesting and recursion, and are easily converted to structured code. Nassi-Shneiderman charts should not be used for documenting complete programs or large routines. As a general rule, Nassi-Shneiderman charts should be limited to a single page with no more than 20 subdivisions. For larger rout
Read more