Introduction

The CPA profession has celebrated its first century of service to the business and investing community. Throughout that century, the accounting profession, for the most part, has been allowed to operate in a self-regulated environment. For many years accounting has stood out as one of just a few careers that could be called a profession because of self-regulation. A significant part of that self-regulation is that the accounting profession is responsible for establishing the accounting standards by which financial statements are to be prepared and also the auditing standards that auditors are to follow in auditing those financial statements.

It will come as no surprise to anyone that confidence in corporate America has been shaken by a series of accounting scandals. The scandals of Enron and Parmalat and others have heightened sensitivities over the role structured financing play in questionable accounting practices. As business combinations have become more complicated and reports of accounting scandal and fraud become more prevalent, other authorities have intervened.

In this program, Auditor Responsibilities for Detection of Fraud, we will focus on basic elements of fraud, evaluate the risks of fraud and discuss ways to implement the processes, procedures, and controls needed to mitigate such risks. This program identifies a number of different fraud schemes and concentrates on the auditor's responsibility concerning fraud in a financial statement audit. We will look at the types of fraud committed against small businesses by those outside the organization, as well as examine the relevance and importance of §404 of the Sarbanes-Oxley Act for public companies.

Organization

This program is divided into nine (9) chapters, three (3) appendices, and a topical index.

Chapter 1 introduces the user to the topic of fraud.

Chapter 2 concerns fraudulent financial reporting.

Chapter 3 covers misappropriation of cash and the basic types of cash misappropriation schemes.

Chapter 4 explains how assets, other than cash, may be misused.

Chapter 5 discusses various fraud schemes, such as bribery, conflict of interest, vendor/customer fraud schemes. This chapter identifies ways to detect and prevent these schemes.

Chapter 6 evaluates the risks of fraud and discusses ways to implement the processes, procedures, and controls needed to mitigate such risks.

Chapter 7 concentrates on the auditor's responsibility concerning fraud in a financial statement audit.

Chapter 8 looks at the types of fraud committed against small businesses by those outside the organization.

Chapter 9 examines the relevance and importance of §404 of the Sarbanes-Oxley Act.

Program Learning Objectives

Upon completion of this program, the user should:

• Understand the definition of fraud
• Recognize the three elements necessary to prove fraud
• Be aware of how fraud is prosecuted, both criminally and civilly
• Understand the three characteristics of fraud
• Understand financial reporting, responsibility for financial statements, and the nature of financial statement fraud
• Recognize skimming, larceny and check tampering schemes, as well as methods of detection and prevention
• Understand how assets other than cash are misappropriated
• Recognize bribery, conflict of interest, vendor/customer fraud schemes, as well as how to detect and prevent these schemes
• Understand the three fundamental elements to prevent, deter, and detect fraud
• Understand how to reduce the opportunities for fraud
• Understand the auditor's responsibility concerning fraud in a financial statement audit
• Be aware of the requirements of SAS No. 99
• Be aware of the requirements concerning fraud in a compilation or review engagement
• Be aware of common fraud schemes against small businesses
• Know the relevance and importance of §404 of the Sarbanes-Oxley Act
• Be aware of the differences between internal control over financial reporting and disclosure controls and procedures

Author/Speaker

J. Russell Madray, CPA, CIA, CMA, CFM, is president of The Madray Group, Inc., which specializes in knowledge transfer. Through a combination of technical writing, training, and targeted consulting, The Madray Group helps businesses, accounting firms, and other organizations understand and implement technical accounting and auditing issues. Mr. Madray is a past member of the AICPA Accounting and Review Services Committee and a current member of the Board of Directors of the SC Association of CPAs. He is the author of numerous publications and articles on accounting and auditing topics, including the AICPA's Compilation and Review Alert. In addition, he speaks to hundreds of groups each year on accounting and auditing topics and has made presentations in more than 40 states. He has more than 15 years of professional experience, including 10 years in public practice. In 1996, he formed The Madray Group to support and facilitate the range of services offered by CPAs to their clients and to enable CPAs to meet the changing needs of their profession. Mr. Madray also serves as a senior lecturer at Clemson University's School of Accountancy and Legal Studies. (Author)

Kurt G. Oestriecher, CPA, is a partner with Osetriecher & Company of Alexandria, Louisiana. He graduated cum laude from Northeast Louisiana University in 1986 with a BBA in Accounting. He is partner in charge of accounting and auditing services, and is also involved in litigation support and small business engagements. He is a member of the AICPA and the Louisiana Society of CPA's (LCPA) and is the current president of LCPA. He is Chairman of the Louisiana Accounting and Auditing Conference Committee and is also serving on the Strategic Planning Committee, Budget Committee, Legislation Committee and Annual Convention Committee for the LCPA. He was the recipient of the 1998 Outstanding Discussion Leader Award from the LCPA. Kurt is a frequent lecturer for AICPA/PDI in Accounting and Auditing topics, and was chosen as a member of the Distinguished Instructor Panel at the 2000 AICPA/PDI Instructor Retreat. In addition to the CPE courses, Kurt has authored and presented numerous courses for state and national conferences. (Speaker)