Ais Case 7-3 Accounting Essay
AIS Case#1
Sun Ho Sin
University of Maryland University College
Abstract
Answer for question #52; Coupon Accounting and #55; Evan Charter on Chapter3 is given in this assignment.
#52; Coupon Accounting
a. Yes, this situation called “Coupon Accounting Abuse” can happen to a company with a good control environment. This situation would fall under management fraud where top-level manager within the company conduct a fraudulent financial reporting in order to receive personal benefit. Managers operate above the level of internal controls by circumventing the internal control; therefore this can happen to a company with a good control environment.
b. To prevent or detect management fraud, the company needs to establish a professional internal audit staff that periodically checks up on management activities and reports to the audit committee of the board of directors.
c. Falsely increased stock price and falsely prepared financial statements will …show more content…
I consider this example to be management fraud because, first of all Larry is a brand manager who has a direct access to the financial record. Misstating financial statement to enhance chances of promotion or to increase incentive-based compensation as bonus is a major reason the management fraud occurs as stated in our textbook, Accounting Information Systems (p82). In addition, as stated in the problem, “but he also knows that neither the firm’s independent nor internal auditors will seriously challenge the estimate” shows that this manager can override the internal control which is the main challenge with preventing management fraud. Also, Larry said, “If the auditors question the rate, I’ll give them a story about seasonality and shifting consumer patter. They won’t know enough about marketing to question my story.” This shows another typical management fraud involves complex transactions, manipulations on business structure like Enron did where managers operate above the level of internal
Sun Ho Sin
University of Maryland University College
Abstract
Answer for question #52; Coupon Accounting and #55; Evan Charter on Chapter3 is given in this assignment.
#52; Coupon Accounting
a. Yes, this situation called “Coupon Accounting Abuse” can happen to a company with a good control environment. This situation would fall under management fraud where top-level manager within the company conduct a fraudulent financial reporting in order to receive personal benefit. Managers operate above the level of internal controls by circumventing the internal control; therefore this can happen to a company with a good control environment.
b. To prevent or detect management fraud, the company needs to establish a professional internal audit staff that periodically checks up on management activities and reports to the audit committee of the board of directors.
c. Falsely increased stock price and falsely prepared financial statements will …show more content…
I consider this example to be management fraud because, first of all Larry is a brand manager who has a direct access to the financial record. Misstating financial statement to enhance chances of promotion or to increase incentive-based compensation as bonus is a major reason the management fraud occurs as stated in our textbook, Accounting Information Systems (p82). In addition, as stated in the problem, “but he also knows that neither the firm’s independent nor internal auditors will seriously challenge the estimate” shows that this manager can override the internal control which is the main challenge with preventing management fraud. Also, Larry said, “If the auditors question the rate, I’ll give them a story about seasonality and shifting consumer patter. They won’t know enough about marketing to question my story.” This shows another typical management fraud involves complex transactions, manipulations on business structure like Enron did where managers operate above the level of internal