CA FINAL

RISK MANAGEMENT

CASE STUDY

IN-HOUSE BY SSEI

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CA FINAL

RISK MANAGEMENT

CASE STUDY

IN-HOUSE BY SSEI

Powered By -

CA FINAL

RISK MANAGEMENT

CASE STUDY

IN-HOUSE BY SSEI

Powered By -

SANJAY SARAF SIR1

CASE STUDY 1Answer

FRAUD INCIDENT 1

Type of Fraud Fraud FactorAudit Procedure to

detect Misstatement dueto Fraud.

Fraudulent FinancialReporting

Incentive/Pressure Analyze inventory turnoverratio

Explanation :Profitability threatened by industry conditions, such as product obsolescence, cancreate pressure for management to misstate the financial statements. Managementshould be aware that competitor products can affect the value of inventory. Obsoleteinventory should be written down to its new value, which would result in a debit tothe income statement for the loss and a credit to inventory to bring the value ofinventory to its new value. Analysis of inventory turnover would show a much lowerturnover of inventory as compared to prior years. This decrease in the ratio wouldlead the auditor to investigate the reason why inventory turnover decreased, whichwould prompt the auditor to review the inventory valuation.

SANJAY SARAF SIR1

CASE STUDY 1Answer

FRAUD INCIDENT 1

Type of Fraud Fraud FactorAudit Procedure to

detect Misstatement dueto Fraud.

Fraudulent FinancialReporting

Incentive/Pressure Analyze inventory turnoverratio

Explanation :Profitability threatened by industry conditions, such as product obsolescence, cancreate pressure for management to misstate the financial statements. Managementshould be aware that competitor products can affect the value of inventory. Obsoleteinventory should be written down to its new value, which would result in a debit tothe income statement for the loss and a credit to inventory to bring the value ofinventory to its new value. Analysis of inventory turnover would show a much lowerturnover of inventory as compared to prior years. This decrease in the ratio wouldlead the auditor to investigate the reason why inventory turnover decreased, whichwould prompt the auditor to review the inventory valuation.

SANJAY SARAF SIR1

CASE STUDY 1Answer

FRAUD INCIDENT 1

Type of Fraud Fraud FactorAudit Procedure to

detect Misstatement dueto Fraud.

Fraudulent FinancialReporting

Incentive/Pressure Analyze inventory turnoverratio

Explanation :Profitability threatened by industry conditions, such as product obsolescence, cancreate pressure for management to misstate the financial statements. Managementshould be aware that competitor products can affect the value of inventory. Obsoleteinventory should be written down to its new value, which would result in a debit tothe income statement for the loss and a credit to inventory to bring the value ofinventory to its new value. Analysis of inventory turnover would show a much lowerturnover of inventory as compared to prior years. This decrease in the ratio wouldlead the auditor to investigate the reason why inventory turnover decreased, whichwould prompt the auditor to review the inventory valuation.SSEI

SANJAY SARAF SIR2

FRAUD INCIDENT 2

Type of Fraud Fraud FactorAudit Procedure to detect

Misstatement due toFraud.

Misappropriation of Assets Attitudes/Rationalization Observe distribution ofpaychecks

Explanation:Misappropriation of assets | Attitudes/Rationalization | Observe distribution ofpaychecksThe payroll manager rationalizes that he should get paid market value, so hefraudulently increases his salary by creating a fictitious employee. The theft of assets(cash) is considered misappropriation of assets. The auditor would be able to uncoverthis fraud by observing the distribution of paychecks and noting that the fictitiousemployee does not exist.

SANJAY SARAF SIR2

FRAUD INCIDENT 2

Type of Fraud Fraud FactorAudit Procedure to detect

Misstatement due toFraud.

Misappropriation of Assets Attitudes/Rationalization Observe distribution ofpaychecks

Explanation:Misappropriation of assets | Attitudes/Rationalization | Observe distribution ofpaychecksThe payroll manager rationalizes that he should get paid market value, so hefraudulently increases his salary by creating a fictitious employee. The theft of assets(cash) is considered misappropriation of assets. The auditor would be able to uncoverthis fraud by observing the distribution of paychecks and noting that the fictitiousemployee does not exist.

SANJAY SARAF SIR2

FRAUD INCIDENT 2

Type of Fraud Fraud FactorAudit Procedure to detect

Misstatement due toFraud.

Misappropriation of Assets Attitudes/Rationalization Observe distribution ofpaychecks

Explanation:Misappropriation of assets | Attitudes/Rationalization | Observe distribution ofpaychecksThe payroll manager rationalizes that he should get paid market value, so hefraudulently increases his salary by creating a fictitious employee. The theft of assets(cash) is considered misappropriation of assets. The auditor would be able to uncoverthis fraud by observing the distribution of paychecks and noting that the fictitiousemployee does not exist.

SSEI

SANJAY SARAF SIR3

FRAUD INCIDENT 3

Type of Fraud Fraud FactorAudit Procedure to detect

Misstatement due toFraud.

Misappropriation of Assets Opportunities Review prices of similarproducts

Explanation :Misappropriation of assets | Opportunities | Review prices of similar productsThe inventory purchasing manager has the opportunity to pay higher than marketvalue for inventory because there are important internal controls missing, such asobtaining competitive bids from various suppliers and obtaining proper approval forpurchase. This situation represents misappropriation of assets as the companyshould be paying less for the products. The auditor can detect this fraud scheme byreviewing prices of similar products.

SANJAY SARAF SIR3

FRAUD INCIDENT 3

Type of Fraud Fraud FactorAudit Procedure to detect

Misstatement due toFraud.

Misappropriation of Assets Opportunities Review prices of similarproducts

Explanation :Misappropriation of assets | Opportunities | Review prices of similar productsThe inventory purchasing manager has the opportunity to pay higher than marketvalue for inventory because there are important internal controls missing, such asobtaining competitive bids from various suppliers and obtaining proper approval forpurchase. This situation represents misappropriation of assets as the companyshould be paying less for the products. The auditor can detect this fraud scheme byreviewing prices of similar products.

SANJAY SARAF SIR3

FRAUD INCIDENT 3

Type of Fraud Fraud FactorAudit Procedure to detect

Misstatement due toFraud.

Misappropriation of Assets Opportunities Review prices of similarproducts

Explanation :Misappropriation of assets | Opportunities | Review prices of similar productsThe inventory purchasing manager has the opportunity to pay higher than marketvalue for inventory because there are important internal controls missing, such asobtaining competitive bids from various suppliers and obtaining proper approval forpurchase. This situation represents misappropriation of assets as the companyshould be paying less for the products. The auditor can detect this fraud scheme byreviewing prices of similar products.

SSEI