1. FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT Financial Statement Fraud CHAPTER 11

2. Learning Objectives 1. Understand the role that financial statements play in U.S. businesses. 2.Describe the nature of financial statement fraud. 3.Become familiar with financial statement fraud statistics 4.See how financial statement frauds occur and are concealed.

3. Learning Objectives 5.Understand the framework for detecting financial statement fraud. 6.Identify financial statement fraud exposures. 7.Explain how information regarding a company’s management and directors, nature of organization, characteristics, relationship with others, and financial results can help assess the likelihood of financial statement fraud.

4. What Are Some Problems with Financial Statements?

5. Review the Fraud Triangle.

6. What Are the Elements of the Perfect Fraud Storm?

8. Financial Statement Fraud Statistics.  Infrequent  300 over 10 years  Costly  Last 23.7 months  Mean $25 million  CEO in 72%, CFO, COO  Computer hardware/software  78% of firms on NASDAQ

9.  Most had no audit committee  Most directors were insiders  Family relationships between directors  56% audited by Big Eight or Big Six  25% changed auditors during fraud  Significant number of class action suits  Many resignations-few served jail time Financial Statement Fraud Statistics.

10. What Are the Motives for Financial Statement Fraud?

11. Discuss Detecting Financial Statement Fraud.

12. Complete the Fraud Exposure Rectangle. 12 3 4 Fraud Exposure Rectangle

13. Discuss Management & Directors.

14. Comment On & Explain Relationships with Others.

15. Describe Questionable Organizations & Industries.

16. List What to Ask About Organization & Industry.

17. What Approach is Taken to Examine Financial Statements?

18. What Approach is Taken to Examine Financial Statements? (cont’d)

19. Define the Acronyms. 1.COSO is 2.SEC is 3.GAAP is

20. Match Terms & Definitions. 10-K 10-Q AAER SEC Document released by SEC when a company commits financial statement fraud Annual report publicly traded companies file with SEC Government Agency responsible for regulating stock trading & financial Statements of Public companies Quarterly report publicly traded companies file with SEC

21. Match Terms & Definitions. Financial Statement Fraud Financial Statements Treadway Commission Reports summarizing cash & profits of an organization Intentionally misstating financial statements It recommended changes in financial statements