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Fraud Risk at Acme Industries

In order to assess the likelihood of misappropriation of assets and the likelihood of fraudulent financial reporting, each of the following fraud risk factors should be considered in the Acme audit:

The possibility of ineffective monitoring of management as a result of an ineffective board of directors or audit committee oversight over the financial reporting process and internal controls.

A complex or unstable organization structure as evidenced by high turnover if senior management, legal counsel or board members

Aggressive accounting policy choices and questionable financial reporting practices adopted by management

Excessive pressure on management or operating personnel to meet financial targets established by the board of directors or senior management, including sales or profitability incenthve goals

Indications of inadequate segregation of duties or a lack of independent checks and balances

Inadequate physical safeguards over cash investments, inventory or fixed assets

Disregard for internal controls over misappropriation of assets by overriding existing controls or by failing to correct known control deficiencies

Disregard of the need for monitoring and reducing risks relating to misappropriation of assets

One of the strengths of Acme is an effective board of directors. For example, the board seems to play an appropriate role in monitoring Acme's business operations. With respect to item #1 listed above, the board meets five to six times a year, and an adequate number are independent directors rather than company officers. Also, the board actively discusses and debates decisions, strategic initiatives and major business transactions during these meetings. Members of the board appear to pay close attention to issues that require its attention. For example, the audit committee meets privately with the company's chief accounting officer and its external auditors on a regular basis. The only we...

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Fraud Risk at Acme Industries. (1969, December 31). In LotsofEssays.com. Retrieved 14:27, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1694832.html