Misappropriation of assets can be accomplished with the following except
Part 1 of 3: Asset MisappropriationAsset misappropriation can be defined as using company or client assets for personal gain. This is also known as “stealing.” There are two main categories of asset misappropriation: cash and noncash. Although the average loss of each fraud case is low, asset misappropriation is the most common type of occupational fraud committed. Some of the more popular methods used by employees on the company or corporate asset side of misappropriation are skimming, larceny, check tampering, billing fraud, payroll fraud, expense reimbursement fraud, misuse of assets and theft of assets. Some of the popular tactics on the client asset side include embezzlement, larceny, and Ponzi schemes. Show
All levels of personnel are guilty of committing asset misappropriation; however, individuals in accounting departments are most commonly guilty of performing the fraud as they are closest to the financial data and typically have access to company funds. For corporate assets, asset appropriation is most commonly conducted by lower level employees or managers while conversely, for client assets, it is performed by higher level trusted positions such as lawyers and financial advisors. The longer an employee has been with a company and the higher the employee’s education, typically, the larger the loss suffered by the company as a result of the fraud. The three main motives for committing asset misappropriation are pressures/incentives, opportunity and rationalizations. Pressure/incentives can be created by personal financial struggles or negative relationships between the company and its employees; while opportunities result from large sums of cash on hand or easily convertible assets. Rationalizations can be created by a company’s disregard for monitoring or risk reduction or employees who feel wronged by the company. Employees who commit asset misappropriation can display many behavioral red flags such as: living beyond their means, unwillingness to share duties or take vacations, irritability or defensiveness, unusual close relationship with vendor(s), and addiction issues. The risk of asset appropriation fraud can be mitigated in a number of ways. Two effective methods are a fraud risk assessment and/or the implementation of adequate internal controls. A fraud risk assessment can clearly identify areas of the organization that are most susceptible to fraud. As a result of this, an organization can implement or strengthen their internal controls more confidently. Organizations who lack segregation of duties, physical safeguarding, asset reconcilement, management review and personnel competency are the most susceptible to fraud. At the very least, if your organization has segregation of duties in place, there will be collusion required between employees to execute fraud. Companies should review their internal controls to determine whether their controls are adequate to mitigate the risk of asset misappropriation before becoming a victim of asset appropriation fraud. This is part 1 of a 3-part series on Occupational Fraud. To read more, please click on the links belowOccupational Fraud Series Part 1 of 3: Asset Misappropriation Occupational Fraud Series Part 2 of 3: Corruption Schemes Occupational Fraud Series Part 3 of 3: Financial Statement Fraud Page 1 of 10 AT-5904 CPA REVIEW SCHOOL OF THE PHILIPPINES M a n i l a AUDITING THEORY PROFESSIONAL AND LEGAL RESPONSIBILITIES Related PSAs : PSA 240rev, 250 and 260 PSA 240(rev) – The Auditor’s Responsibility to Consider Fraud and Error in the Audit of FS 1. The primary responsibility for the prevention and detection of fraud and error rests with a. The auditor. c. The management of an entity. b. Those charged with governance. d. Both b and c. 2.When planning and performing audit procedures and evaluating and reporting the results thereof, the auditor should a.Search for errors that would have a material effect and for fraud that would have either material or immaterial effect on the financial statements. b. Consider the risk of misstatements in the financial statements resulting from fraud or error. c. Search for fraud that would have a material effect and for errors that would have either material or immaterial effect on the financial statements. d.Consider the risk of material misstatements in the financial statements resulting from fraud or error. 3. The following are examples of error, except a. A mistake in gathering or processing data from which financial statements are prepared. b. An incorrect accounting estimate arising from oversight or misinterpretation of facts. c. A mistake in the application of accounting principles relating to measurement, recognition, classification, presentation, or disclosure. d. Misrepresentation in the financial statements of events, transactions or other significant information. 4.The term “fraud” refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Which statement is correct regarding fraud? a. Auditors make legaldeterminations of whether fraud has actually occurred. b. Misstatement of the financial statements may not be the objective of some frauds. c. Fraud involving one or more members of management or those charged with governance is referred to as “employee fraud”. d. Fraud involving only employees of the entity is referred to as “management fraud”. 5.The types of intentional misstatements that are relevant to the auditor’s consideration of fraud include I. Misstatements resulting from fraudulent financial reporting II. Misstatements resulting from misappropriation of assets a. I and II b. I only c. II only d. Neither I nor II 6.Fraudulent financial reporting involves intentional misstatements or omissions of amounts or disclosures in financial statements to deceive financial statement users. Fraudulent financial reporting least likely involve a. Deception such as manipulation, falsification, or alteration of accounting records or supporting documents from which the financial statements are prepared. b. Misrepresentation in, or intentional omission from, the financial statements of events, transactions or other significant information. c. Intentional misapplication of accounting principles relating to measurement, recognition, classification, presentation, or disclosure. d. Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for goods and services not received. 7. Which of the following illustrates a perceived opportunity to commit fraud? a. Individuals are living beyond their means. b. Management is under pressure, from sources outside or inside the entity, to achieve an expected (and perhaps unrealistic) earnings target. Which of the following is a misappropriation of assets?Misappropriation of assets includes false or misleading records or documents, possibly created by circumventing controls. Examples include but are not limited to embezzling funds; theft of assets; causing an entity to pay for goods and services that have not been received; skimming revenues; payroll fraud.
What factors indicate misappropriation of assets?Inadequate record keeping within respect to assets susceptible to misappropriation. Lack of appropriate segregation of duties or independent checks. Lack of appropriate system of authorization and approval of transactions (for example, in purchasing)
Which of these is not an example of misappropriation of assets?Answer: The correct answer is: The chief financial officer of the company falsely adds $20 million to the accounts receivable and revenue accounts.
What is the meaning of misappropriation of asset?Asset misappropriation fraud happens when people who are entrusted to manage the assets of an organisation steal from it. Asset misappropriation fraud involves third parties or employees in an organisation who abuse their position to steal from it through fraudulent activity. It can also be known as insider fraud.
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