Question

Describe without specific information the steps you would take if you suspect financial reporting fraud at an organization?

Answer 1

The reasons for fraudulent financial reporting includes (a) pressures from owners, creditors and the markets in general; (b) opportunities for fraud (due to lack of emphasis on business ethics), etc. and (c) incentives and personal conflicts of interests.

Controls designed to prevent fraudulent financial reporting include external auditing, independent board of directors, active regulators, vigilant capital markets and overall ethical corporate culture

•Senior members must be at the right culture from the top to bottom
•establish and promote a whistle blower effective program
•question financial results that are always on target
•have skeptics on board of directors
•question extraordinary or complex transactions
•analyse accounts receivable
•question cash flow when doesn't match the revenue growth
•analyse swing in assets and liabilities