Capstone Research Project Paper Example | Topics and Well Written Essays - 1500 words

Capstone Project - Research Paper Example The foremost factor that has to be understood before representing the misstatement as a fraud is the ‘nature of misstatement’. Nature represents as to whether the misstatement has been made intentionally or unintentionally. According to the specifications within SAS No. 82, fraud is an action that is conducted intentionally and as a result of which ‘material misstatements’ occur within a firm’s financial statements (American Institute of CPAs, 2011). There are several indicators of fraud that have been represented within the SAS No. 82. These are also considered as factors of risk, few of which have been listed below. The consideration of these cases will definitely help in identifying fraud in the given five scenarios within the case. Indicators of Fraud in Relation to Financial Reporting: (a) A massive amount of compensation for the management has been stated to be in structure of bonuses. (b) The management of the firm is dominated by an only indiv idual or a very small group without allowing any role of the board of directors. (c) Involving into regular disputes with the present or previous management or auditors on issues related to auditing and accounting. (d) Limitations imposed on the auditor for improperly restricting activities related to key information and people. (e) Failure to pay the bills while there is reportedly huge earnings. (f) Transactions within related party apart from the normal courses of business. Indicators of Fraud in Relation to Assets Misappropriation: (a) Inadequacy of management supervision (b) Massive amount of cash is in hand or are processed on a regular basis (c) Inappropriate screening of the applicants for job (d) Inappropriate activities of record keeping (e) Inappropriate isolation of duties (f) Inappropriate process of approval of transactions (g) Non compliance with the time limit for presenting documents related to transaction (h) Inadequacy in controlling physical assets (i) Inappropri ate provision of compulsory vacations for the employees (Porter & Pope, 2011). The fraud indications described under SAS No. 82 can well be compared with that of the given company for identifying whether fraud is taking place or not. If it is found that the management is guilty of the above fraud indications, the SAS specifications provide that the auditor can undertake the following activities: (1) Acquire a clear and concise understanding of the accounting process being carried out within the company along with verification of journal entries along with adjustments. (2) Categorize and choose particular journal entries along with adjustments for verifying. (3) Decide on the verification timing. (4) Investigate the individuals associated with activities in relation to financial reporting and make inquiries regarding lack of appropriation in journal entries as well as adjustments. (Public Company Accounting Oversight Board, 2011). Effectiveness of SAS No. 82 towards Minimization of O rganization’s Fraudulent Activities After the incorporation of the standards under SAS No. 82, the various companies have started evaluating the impact of the rules to reduce frauds within the organizations. An internal analyst of financial activities can become successful through following the rules mentioned under SAS No. 82. However, there is requirement through the rules that the assessment of risk has to be conducted by an external auditor (Public Oversight Board, 2