Kirsch Kohn Bridge CPAs + Advisors
  • About
    • Firm Overview
    • Our Team
    • International Affiliation
  • Services
    • Assurance and Accounting
    • Tax
    • Advisory Services
  • Industries
    • Construction
    • Manufacturing and Distribution
    • Not-For-Profits
    • Professional Services
    • Real Estate
    • Retail
    • Technology
  • Insights
  • Careers
  • Contact
  • Client Resources
  • Pay Online
  • Menu Menu
  • LinkedIn

How to Assess Fraud Risks Today

November 12th, 2021/Advisory

Auditing standards require external auditors to consider potential fraud risks by watching out for conditions that provide the opportunity to commit fraud. Unfortunately, conditions during the COVID-19 pandemic may have increased your company’s fraud risks.

For example, more employees may be working remotely than ever before. And some workers may be experiencing personal financial distress — due t o reduced hours, decreased buying power or the loss of a spouse’s income — that could cause them to engage in dishonest behaviors. Financial statement auditors must maintain professional skepticism regarding the possibility that a material misstatement due to fraud may be present throughout the audit process. Specifically, Statement on Auditing Standards (SAS) No. 99, Consideration of Fraud in a Financial Statement Audit, requires auditors to consider potential fraud risks before and during the information-gathering process.

Business owners and managers may find it helpful to understand how this process works — even if their financial statements aren’t audited. Doubling down on fraud risks During planning procedures, auditors must conduct brainstorming sessions about fraud risks. In a financial reporting context, auditors are primarily concerned with two types of fraud:

1. Asset Misappropriation.

Employees may steal tangible assets, such as cash or inventory, for personal use. The risk of theft may be heightened if internal controls have been relaxed during the pandemic. For example, some companies have waived the requirement for two signatures on checks, and others have reduced oversight during physical inventory counts.

2. Financial Misstatement.

Intentional misstatements, including omissions of amounts or disclosures in financial statements, may be used to deceive people who rely on your company’s financial statements. For example, managers who are unable to meet their financial goals may be tempted to book fictitious revenue to preserve their year-end bonuses. Or a CFO may alter fair value estimates to avoid reporting impairment of goodwill and other intangibles and triggering a loan covenant violation.

Identifying risk factors Auditors must obtain an understanding of the entity and its environment, including internal controls, in order to identify the risks of material misstatement due to fraud. They must presume that, if given the opportunity, companies will improperly recognize revenue and management will attempt to override internal controls. Examples of fraud risk factors that auditors consider include:

  • Large amounts of cash or other valuable inventory items on hand, without adequate security measures in place,
  • Employees with conflicts of interest, such as relationships with other employees and financial interests in vendors or customers,
  • Unrealistic goals and performance-based compensation that tempt workers to artificially boost revenue and profits,
  • Weak internal controls.

Auditors also watch for questionable journal entries that dishonest employees could use to hide their impropriety. These entries might, for example, be made to intracompany accounts, on the last day of the accounting period or with limited descriptions. Once fraud risks have been assessed, audit procedures must be planned and performed to obtain reasonable assurance that the financial statements are free from misstatement. Following up Auditors generally aren’t required to investigate fraud. But they are required to communicate fraud risk findings to the appropriate level of management, who can then take actions to prevent fraud in their organizations. If conditions exist that make it impractical to plan an audit in a way that will adequately address fraud risks, an auditor may even decide to withdraw from the engagement.

Plan ahead

Contact us to discuss your concerns about heightened fraud risks during the pandemic and ways we can adapt our audit procedures for emerging or increased fraud risk factors.

© 2021

TAGS: Advisory

Share This
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on Pinterest
  • Share on LinkedIn
  • Share on Tumblr
  • Share on Vk
  • Share on Reddit
  • Share by Mail

Sign Up For Insights

This field is for validation purposes and should be left unchanged.

Categories

  • Advisory
  • Assurance
  • Tax

Archives

  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021

Insights

The Inflation Reduction Act includes wide-ranging tax provisions

August 16, 2022/0 Comments/in Tax/by LG-Admin

The Inflation Reduction Act is about to become law. Learn how its tax provisions might affect you. Continue Reading The Inflation Reduction Act includes wide-ranging tax provisions

Read more
http://kkbcpa.com/wp-content/uploads/2022/08/1.jpg 292 560 LG-Admin https://kkbcpa.com/wp-content/uploads/2021/12/KKB-Logo-w-text.png LG-Admin2022-08-16 11:59:532022-08-16 11:59:54The Inflation Reduction Act includes wide-ranging tax provisions

FTB Error – PTE Refunds Must be Returned

August 10, 2022/0 Comments/in Tax/by LG-Admin

Due to errors by the California Franchise Tax Board (FTB) in its processing of passthrough entity tax payment vouchers, the FTB is erroneously issuing refunds of the 2022 prepayments of the passthrough entity elective tax that were paid with the FTB Form 3893 (PTE) vouchers. Continue Reading FTB Error – PTE Refunds Must be Returned

Read more
http://kkbcpa.com/wp-content/uploads/2022/08/shutterstock_698158717.jpg 334 500 LG-Admin https://kkbcpa.com/wp-content/uploads/2021/12/KKB-Logo-w-text.png LG-Admin2022-08-10 17:44:262022-08-11 11:52:45FTB Error – PTE Refunds Must be Returned

Estimated tax payments: Who owes them and when is the next one due?

August 9, 2022/0 Comments/in Tax/by LG-Admin

Self-employed taxpayers generally must make quarterly estimated tax payments. But even if you’re not self-employed, you may have to make them to avoid a penalty if you don’t have enough federal tax withheld. Here are the rules. Continue Reading Estimated tax payments: Who owes them and when is the next one due?

Read more
http://kkbcpa.com/wp-content/uploads/2022/08/1660054345331.jpg 292 560 LG-Admin https://kkbcpa.com/wp-content/uploads/2021/12/KKB-Logo-w-text.png LG-Admin2022-08-09 15:58:062022-08-10 16:59:12Estimated tax payments: Who owes them and when is the next one due?

FTB Error – PTE Refunds Must be Returned

August 10, 2022/0 Comments/in Tax/by LG-Admin
Read more
http://kkbcpa.com/wp-content/uploads/2022/08/shutterstock_698158717.jpg 334 500 LG-Admin https://kkbcpa.com/wp-content/uploads/2021/12/KKB-Logo-w-text.png LG-Admin2022-08-10 17:44:262022-08-11 11:52:45FTB Error – PTE Refunds Must be Returned

Estimated tax payments: Who owes them and when is the next one due?

August 9, 2022/0 Comments/in Tax/by LG-Admin
Read more
http://kkbcpa.com/wp-content/uploads/2022/08/1660054345331.jpg 292 560 LG-Admin https://kkbcpa.com/wp-content/uploads/2021/12/KKB-Logo-w-text.png LG-Admin2022-08-09 15:58:062022-08-10 16:59:12Estimated tax payments: Who owes them and when is the next one due?

Bonus Depreciation: Businesses Should Act Now

July 28, 2022/0 Comments/in Tax/by LG-Admin
Read more
http://kkbcpa.com/wp-content/uploads/2022/07/3.jpg 286 508 LG-Admin https://kkbcpa.com/wp-content/uploads/2021/12/KKB-Logo-w-text.png LG-Admin2022-07-28 13:11:092022-07-29 13:34:59Bonus Depreciation: Businesses Should Act Now
View All

Sign up for insights

This field is for validation purposes and should be left unchanged.
KKB alternate logo

Kirsch Kohn & Bridge LLP

Phone: 818-907-6500
Fax: 818-783-0725
21800 Oxnard St., Suite 900
Woodland Hills, CA 91367
info@kkbcpa.com

Firm Overview
Our Team
International Affiliation
Contact
Careers

Sign up for our newsletter
Client Resources
Pay Online

© 2022 Kirsch Kohn & Bridge LLP. All rights reserved. Privacy Policy

Infrastructure Law Sunsets Employee Retention Credit EarlyBusinesses Can Show Appreciation — and Gain Tax Breaks — With Holiday Gifts...
Scroll to top