- The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
- In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
- Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain - Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
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Binu Anna Eapen says
2.In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
Management Assertion are the statement or fact that the management claim. Management Assertion dimensions is a measure to check the validity.
Dimensions of Management Assertions:
• Occurrence
• Existence
• Timing
• Completeness
• Accuracy
• Valuation
• Rights(Ownership)
• Summarisation/ Presentation
• Classification
The most important is Completeness as it means that all transactions are included as and when it occurs. Because it covers the other dimension to a large extend. If all transactions are recorded properly in time then accuracy is maintained, timings, and occurance are in check, it provides proof to existence of the asset, liability or equity, value of the property can also be determined
Seunghyun (Daniel) Min says
Binu,
Thank you for the post! I agree with you that Completeness is one of the most salient factors of the management assertion dimension. If I can add to your point, I also think of Accuracy as another important factor. As an auditor, he/she would look into whether the data is precise or doubtful. A single inaccurate data found in the end of the audit can more than likely have an auditor to revisit or re-investigate the whole audit process. It is critical to have all data accurate possibly in every portion of the process.
Said Ouedraogo says
In fact, completeness does not mean anything if the data are not accurate. I think that it can be complete if it is not accurate. We must be sure of the accuracy of all data before asserting anything, because a single mistake makes the whole process questionable.
Binu Anna Eapen says
Probably. I thought that if all the transactions are being recorded in time then some sort of accuracy would be maintained. Well, as you said it is not necessary because there could be human error or even misrepresentation of data.
Deepali Kochhar says
We can explain this with three parameters that are:
Confidentiality: Rights(Ownership)
Integrity: Accuracy
Availability: Completeness
So in my opinion all three of them are most important.
Sean Patrick Walsh says
1. The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Assertions are important to a business’s creditors and investors. Both groups rely on assertions provided by the business about its fiscal health and state in order to acquire lines of credit to conduct business. If a creditor or investor loans money to a business on the basis of false assertions then either group is potentially at a significant risk of losing their investment. That loss of investment could further impact the business of those who extended the credit/loans themselves. This ties back into the previous discussion of some of the intentions of Sarbanes-Oxley to reinforce trust in both investors and creditors in publicly traded companies.
Brou Marie Joelle Alexandra Adje says
I definitely agree with you Sean. I’d even add that assertions are also important to investors, since most of the financial metric used to evaluate a company’s stock is computed using figures from the company’s financial statements. If the figures are inaccurate, that would obviously result in misleading financial metrics, such as earnings per share (EPS), which both analysts and investors commonly use to evaluate stocks
Sean Patrick Walsh says
I agree. We definitely saw what happens to investors when false assertions are made with Enron and Worldcom. We still see it today too, but not on as grand of a scale. “Financial engineering” and stock manipulation definitely take place through corporate financial reporting tactics, and many of them never come to light because once a few good quarters return enough profitability the business is able to “fix” the changes quietly.
Binu Anna Eapen says
I also think that Assertions are important to investors, suppliers, bank, customers, oversight bodies, share holders and also to stock market. Because people buy shares or invest in the company based on the company’s financial position and performance.
Ming Hu says
I think that it is. Assertions are important to those people, groups or organizations who need these assertions to make decisions, take actions. As you said, investors decide whether to invest in, bank decide whether to loan to, suppliers decide whether to collaborate with, etc, all based on assertions.
Priya Prasad Pataskar says
Rightly said, assertions are important to investors. Investors must have right to correct and accurate data about the financials of the company. The investor has interest in growth and management of the organization he has invested in. Also the assertions give him clear picture of how his investments have been used.
I also believe they are important to auditors and management.
Auditors get a clear idea of what the company is stating and assertions gives the start point of the audit. If the auditor is unable to obtain a letter containing management assertions from the senior management of a client, the auditor is unlikely to proceed with audit activities. One reason for not proceeding with an audit is that the inability to obtain a management assertions letter could be an indicator that management has engaged in fraud in producing the financial statements.
For management, assertions are a planning tool. Lets not consider all companies want to engage in fraud. Assertions can be used to summarize the financials to plan better fro next year. It also could be used as a marketing tool to attract more investors.
Fangzhou Hou says
Itotally agree with your opinion Sean. Assertions are very important to creditors and investors in the business. I think a clear and accurate management assertion can really help creditors and investors better understand the industry in real. Moreover, I believe that the assertions are also important to the auditors. For example, if the management assertions are related to the cut-off of transactions, then the auditor should ensure the transactions have been recognized in the correct accounting periods.
Vu Do says
Agreed Sean, Assertions are important to investors and business creditors. Providing assertions will show the creditors if the business is doing good or not so they can decide to provide loans or a line of credit like you said. Investors also rely on it to decide whether to invest or not. No one wants to invest in a business that is going downhill so they depend on the assertions to make their decision. Sarbanes-Oxley like you mention reinforces the rules of providing truthful assertions to the public. It is very important to have good informed information and not falsify documents. No one wants to be mislead.
Mansi Paun says
Sean, you’ve rightly said that besides Accountants, assertions are important to business creditors and investors. I’d like to add that assertions would be important to even government bodies like the IRS. I’m not sure how common or feasible it is to evade paying tax, by reporting lower sales or huge business losses to IRS. If there is a discrepancy in the tax report and assertions, it could either signal some kind of fraud being committed – either tax fraud or deceptive marketing practices.
Seunghyun (Daniel) Min says
Q4. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
The Procure to Pay process is a means to obtain or manage raw materials in manufacturing products or providing a service. The nature of the Procure to Pay process is fairly complicating and should be a seamless process from point of order to payment. Technology can help the process be automated by introducing efficiency controls. (Source: http://searchfinancialapplications.techtarget.com/definition/procure-to-pay-P2P)
In general, the Procure to Pay processes are as follows:
1. Determination of requirements
2. Source determination
3. Vendor selection
4. PO processing
5. PO monitoring
6. Goods Receipt
7. Invoice Verification
8. Payment processing
The portions I see as the most vulnerable to failure are ‘Determination of requirements,’ ‘Source determination,’ and ‘Vendor selection.’ The reason I choose them as vulnerabilities of the process is because all other steps except them are quite depending on technology to some extent, but for Determination of requirement, Source determination and Vendor selection, they usually requires human powers to complete the tasks. For example, determining wrong requirements or source can lead to selecting wrong vendors, which will destroy the whole Procure to Pay process at the beginning. And some people who are just up to no good can manipulate or falsify the processes which can be resulted in a fraud. I still see some vulnerability in other portions as well; however, human error/manipulation is the all-time enemy.
Brou Marie Joelle Alexandra Adje says
Daniel, you are right, humans are the biggest threat to the procure to pay process. Any steps involving humans actions i risky. In fact, given human nature, it’s impossible to stamp out fraudulent intent. However, organisations can reduce the likelihood of a successful attempt at misappropriation with the right checks and balances in place. Unfortunately, paper-based or manual processes (still used in some P2P functions) are riddled with opportunity for deliberate fraud or simply good old-fashioned human error.
Seunghyun (Daniel) Min says
Brou,
I agree. Paper-based or manual processes are definitely a factor causing human errors. In my last job at a grocery store, some vendors’ sales representatives were still using a paper order sheet to take an order. Those vendors often made errors with their orders. For example, they didn’t deliver us the items that I ordered or sent us wrong items by human error. Then I had to make a call to make complaints and usually took a week to get right items. As opposed to those paper-based processes, vendors who were using an electronic device to take an order tended not to make mistakes since most of the steps were automated.
Wenlin Zhou says
I strongly agree with your point. The human errors also may be on purpose, some people may select the vender, which give the person some interests. What’s more, manual processes can reduce the human errors, and increasing efficiency. A separation of duties and responsibilities policy can reduce the risk.
Binu Anna Eapen says
Not only in paper work even in data entry also wrong information can be filed.
By human error it can also mean deleting an entry by mistake or falsely entering wrong information as well.
Wenlin Zhou says
Of course, the human error also appeared in information level, so separation of duties and responsibilities can mitigate the risk to an acceptable level.
Sean Patrick Walsh says
I agree that employees are the threat to the vulnerabilities in an ERP system like SAP. I think that a separation of duties and responsibilities policy can help to alleviate a lot of the opportunity for fraud, and a mandatory vacation policy or job rotation policy can help bring the fraud to light before it gets to a very large size.
Deepali Kochhar says
Great point Sean. Segregation of duties can also help in performing log analysis so that if any fraud occurs it can easily be traced and actions can be taken to overcome it.
Seunghyun (Daniel) Min says
Sean.
Rightly said. The SoD(Segregation of Duties) is considered to be mandatory implement control in large corporations. This is because the SoD is effective and efficient in mitigating employees’ fraudulent actions. The example of the SoD is that the person handling cash cannot be the same person that records cash amounts in the company’s general ledgers.
Abhay V Kshirsagar says
Daniel,
I strongly agree with your point. There are various ways to describe one matter, which can be misunderstood and quickly snowball the process into a huge mess. Human error is inevitable and thus if occurs in the first step, can lead to problems in the research phase, which can lead to a wrong vendor selection in the next phase.
Mansi Paun says
Well put, Daniel – I agree with your view that processes which require human involvement, are more vulnerable to fraud, theft or failure as humans can purposely act against laid processes for a variety of reasons such as personal gain, partiality, favoritism etc. Apart from this, as you pointed out, humans are also prone to making wrong judgement calls and typographical and manual errors which could result in failure of the process not functioning as designed.
Ming Hu says
Great answer, I remember one of our professors said before, the effective way to reduce human errors is using automated controls for replacing manual controls. From real-world view, those human involvements are more likely to make mistakes, no matter intentionally or unintentionally, especially compared to automated processes.
Said Ouedraogo says
Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind?
“P2P involves the transactional flow of data that is sent to a supplier as well as the data that surrounds the fulfillment of the actual order and payment for the product or service”.
That being said I think that the first 3 steps are the most vulnerable to theft, fraud and failure.
In fact, the first step (Determination of requirements) is the key to everything. Let’s say the person responsible to order mess up at the very beginning (ordering the wrong quantity, parts…). In that case the whole process will be a failure. Next, (Source determination and Vendor selection) is where the fraud can happen. It is possible to collude with the suppliers. For example, the purchaser can have an understanding with the supplier to inflate the price of the materials. Ley’s say the company is ordering 10,000 helmets and the person responsible to order finds a supplier willing to provide a helmet at $30. Instead of $30, he/she asks the supplier to charge $32 per helmet for a total of $320,000. After completion of the process, both the purchaser and the supplier will have $20,000 to share.
Source: http://searchfinancialapplications.techtarget.com/definition/procure-to-pay-P2P
Brou Marie Joelle Alexandra Adje says
Good point Said. I also think that the good receipt step is also highly “prone” to Fraud because there could be instances where there are receipts for goods that are never been delivered. This type of fraud is not easy and sometimes impossible to detect right away. Take for example a building site. If the concrete is being supplied by a “friendly” supplier, the deliveries are signed for but they are never actually dropped off. The truck leaves the site without dropping off the concrete. The “friendly” supplier gets paid twice for a single delivery. Now it will cost more to build xyz than estimated but the supplier gets more money. Does it make sense?
Priya Prasad Pataskar says
Great post Said. The Ordering process has potential to be fraudulent and can incur loss to the company
1. Unauthorized ordeing can lead to loss
2. Quantity of items to order can be erroneous. Either error can be good are ordered less than estimated or more than estimated
3. Number of goods requested mismatch the number of goods received.
3. Understanding of requirements can go wrong
4. Inaccurate estimates in terms of funds available to order the goods.
5. Time frame can be erroneous. Improper planning , receiving only half the raw materials can become a problem if few materials are perishable.
6. Agreeing to terms unacceptable by tenders
7. Favoritism in selecting vendor
8. Failure to select a good vendor
9. Misunderstanding contract conditions placed by the vendor
10.Variations in tax payment, foreign exchange payment
11 .Loss or damage to goods in transport or in storage
Abhay V Kshirsagar says
Priya,
Interesting point. I didn’t really think about “favoritism” when it comes to selecting vendor. It actually made me think to segregation of duties and different access controls that are needed to mitigate such risks.
Vu Do says
Great points Said, agreed with all of them. I like the example you gave, the first step determination of requirement definitely is a human error. Because the said employee mess up by ordering the wrong parts, that lead to failure and the company cannot put any safeguard in for human error. The next step determination and vendor selection is where most fraud happens. People get tempted and think they are able to get away with it so they would take advantage of what they can for their own self interest. Companies must beware of this and put measures in place to prevent it. The example you provided with the helmet is something that can cost the company a lot of money in the long run. If the company is not aware of the price changes then there is nothing they can do if this does not get uncover and detected.
Paul Linkchorst says
Question 1. The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Management’s assertions are not only important to accountants, it is also important to auditors and financial statement users. From the auditor standpoint, assertions are important because it is those dimensions of management’s assertions that they need to audit. For example, a financial auditor needs to audit that a company’s inventory exists which refers to the existence dimension. Therefore, the auditor will then perform a physical inventory count to make sure that the inventory recorded on the financial statements actually exists. To issue an opinion, auditors need to know the different dimensions of management’s assertions in order for them to perform their audit.
In addition, financial statement users are another important users of management assertions. Since management assertions are in the form of a company’s financial statements, users of the financial statements rely that these assertions are complete, accurate, and all the other dimensions. These users consist of investors, creditors, customers, government users, and the overall general public which make decisions based off of management’s assertions on a daily basis.
Deepali Kochhar says
Great example Paul. Standards and policies defined by an organisation form the basis of an audit and are a kind of assertions for the auditor. It helps the auditor in defining the scope of audit.
Wenlin Zhou says
I agree with your opinion, Management’s assertions related with auditors and financial statement users. The auditors test the validity of these assertions by conducting a number of audit tests. And financial statement users can use those assertions to trust the reliable information, and then make a decision to investment.
Yu Ming Keung says
Hi Paul,
I completely agree with you that the financial statement users aka, shareholders, creditors, customers and government users, are important to the concept of assertions. They really rely upon the auditors to provide correct opinions on the public-held firms that they want to invest or investigate. It indicates that the auditors are required to be familiar with all assertions.
Paul Linkchorst says
2. In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
Importance of management assertions varies depending on the audit with completeness and accuracy being the two most commonly reference. However in my opinion, the most important management assertion is that of completeness. From a balance sheet standpoint and income statement perspective, completeness essentially is that all of the company’s all assets, liabilities, and equity as well as transactions and expenses that should have been recorded, were actually recorded. Essentially, that is to say that nothing has been left out. Since accuracy states that management assertion’s values are accurate, one could argue that is more important to recognize an asset or transaction to begin with rather than having the right amount.
Priya Prasad Pataskar says
Paul, do you think cut off, the correctness of timeline and period of recording of the below levels is also important one.
Transaction level – Transactions can be reported to occur in a different period of month or cycle.
Account balance level – Account balance can be hidden under balance sheets of a different financial year or period.
Assertions are done for disclosure of information to prevent fraudulent activities. I believe fraud can be easily camouflaged under incorrect period reporting.
Ming Hu says
I agree with you, and I believe that each of them is very, very important, but we should focus more on the word “most”, not the “important”. So I think that we need a comparison standard to draw our conclusion.
Paul Linkchorst says
Hi Priya,
I would have to follow up with what Ming had said that I believe it is “most” important. Timing is definitely an important part. However, if an asset isn’t even recorded on the financial statements then timing wouldn’t even be taken into consideration.
Paul Linkchorst says
Question 3. Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
I fortunately have not been a victim of fraud and have not had many experiences where I was pressured to commit an act that was morally or legally questionable. However, I do have one experience where I was put into a situation that was legally questionable. I had previously worked at an outpatient medical practice as an aide. This practice was one location of a practice that had more than 30 locations throughout Pennsylvania. To keep the story short, the previous practitioner of the location had continued treating patients after they had been officially discharged. This means that some services that were provided were not being charged. Since the practitioner’s compensation was based on a salary and not the number of patient’s seen, this meant that she was not financially troubled by her actions while the organization she was part of was being hurt. As an aide, it put me into a tough spot since I had set up and assist the practitioner in treating these uncharged patients.
With that being said, I don’t believe the practitioner was pocketing any money or had any financial incentives outside the business to do so. However, I do not know exactly if that was the case or not. Regardless, I was pressured into an act that was 100% illegal. I ended up staying with that practice for another 4 years, however, a new practitioner had been hired relatively soon after starting those illegal practices were stopped.
Mansi Paun says
That’s interesting, Paul. When I first started reading your post, I was expecting the practitioner to wrongfully treat patients longer than necessary, thereby eventually charging higher fees and making the “business” more profitable. However this seems to be a complete opposite- the patients were being treated for free after getting discharged . Do you know why the practitioner would commit such fraud if he had no financial gains?
What ulterior motive could there be in this case ?
Paul Linkchorst says
Hi Mansi,
I do think the ulterior motive for this case was that the practitioner wanted her patients to receive further treatment to prevent them from getting worse again. While this might be a moral or just cause, it still involved ripping off the company as a whole since their resources were being used without taking in any revenue.
Paul Linkchorst says
Question 4. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
Based on my knowledge and experiences, I would say that the start of the procurement process is the most vulnerable to theft or fraud. As we learned in the reading assignments, fraud can take form in a number of ways. However, fraud essentially boils down to a deceitful act with the purpose to gain from it. With that being said, the exact two steps that I believe are the most vulnerable to fraud are when selecting a vendor and identifying the source of the supplies. One of the most common frauds when involving the procurement process is a “kickback scheme”. This essentially works when an employee has a relationship with a supplier/vendor and use this relationship to their advantage but negatively impacts the company.
For example, an employee of XYZ company might have a brother who owns an office equipment wholesale company. If the employee at XYZ can get his brother as an approved vendor, then the employee might be able to purchase excess products to improve his brother’s business. In return, the employee at XYZ might get money back from him or a very nice holiday gift. While most kickback schemes will vary in some way, by establishing an appropriate vendor list that removes conflicts of interest throughout an organization, one can mitigate the risks of fraud.
Said Ouedraogo says
You are absolutely right. This happens all the time, even if companies say that they have bidding process to chose suppliers. It is really easy to come with a scheme in a company. In fact, if the person responsible for purchasing and one or two persons from the bidding process committee team up, they can do a lot of bad things.
Paul Linkchorst says
Said,
Exactly. This is why from a financial audit standpoint that the procurement process is considered a high risk area which means it’s a big area of focus. From a IT auditor standpoint, we need to test to make sure the procure to pay applications are set up properly to segregate the duties within this process. Likewise, if this area isn’t monitored appropriately then as you said, individuals can do a lot of bad things. The downside is though that it is extremely hard to identify collusion especially from an external auditor standpoint.
Magaly Perez says
Great point Paul!
I never thought to think about that aspect in the vendor selection. I decided to further research the kick-back scheme and stubbled upon how to investigate whether or not this is happening in your particular company.
The author explains, that there a number of ways to prevent it and detect it, but I really enjoyed her excerpt explaining audit clauses. She states, “Under such a clause, the company would have a right to look at the accounting records of the vendor to determine whether there was a fraud or misrepresentation”.
http://www.expertfraud.com/investigation-of-corruption-schemes/
Fangzhou Hou says
Good example of the “kickback scheme”. I agree with what you said that the start of the procurement process is the most vulnerable. Indeed, if the employee has relationship with a vendor, he or she might get benefit from it and has potential risk in damaging the interest of the company. However, I was thinking that the decision maker in a company is usually the head of the department or management, if the one who take a “kickback scheme” is in a high position, then who can supervise his boss?
Binu Anna Eapen says
In the example mentioned if the company XYZ’s employee has a brother who can supply the raw materials that the company is looking for, is it wrong to give the contract to that brother? Is not the purpose of getting raw materials met? If there are benefits to the company as a whole in doing a business with this seller will this still be a risk?
Brou Marie Joelle Alexandra Adje says
The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Assertions are also important to auditors because they assist them in considering a wide range of issues that are relevant to the authenticity of financial statements for example.
The consideration of management assertions during the various stages of audit helps to reduce the audit risk.
Vu Do says
3. Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
I have been a victim of fraud in the past with my credit card being used to purchase items in a different state. I had capital ones Credit card that I only use often since I was in undergrad. I made some purchases online and a month later when I went to check my credit card statement I noticed that it was higher than expected. So I log online and check my statement and seen that there were some purchases made in a different state and on items I did not buy. So I called customer service and told them what happen and they deactivated my account to make sure the thief can’t use my card anymore and sent me home a new card with new numbers and refunded me. So it is important to keep track of your statement to make sure you periodically check it to make sure there are no suspicious activities that you did not authorize.
Brou Marie Joelle Alexandra Adje says
Vu, something similar happened to me twice with my debit card. The first time I was in Philly checking my bank account and noticed that my card was used to purchase gas in new jersey. The second time I was travelling from phoenix to Philly before taking off i checked my statement and and the minute I landed I did the same thing, and realized an unusual charge on my statement : someone used my information to pay their rent in Denver while I was on the plane! SMH. The funny thing is that I never lost my debit card. It was with me the whole time.
I eventually went to a banking center and they cancelled my debit card, gave me a temporary one, opened a case and refunded me the money.
I think that frequent online purchases are the causes of these type of frauds. I do not know how, but hackers cant definitely access our credit cards information through online shopping.
Now to be ‘safer” i’d rather use Paypal or a prepaid visa card for online shopping
Sean Patrick Walsh says
You are very lucky you were refunded the losses to your debit card. Credit card losses are much easier to recover because the laws regarding what the card holder is responsible for in the event of fraud are much more protective than they are for losses incurred from debit card fraud. You have a very limited window of time to “catch” debit card fraud before it automatically becomes the responsibility of the cardholder to bear the loss. That is why using a credit card for your transactions and then paying it off monthly is a safe practice for consumers.
Magaly Perez says
Unfortunately, the same thing happened to me as well!
My credit card was somehow obtained by someone in California and they were able to make purchases via internet. Thankfully, Chase was able to freeze my account, as well as refund me the full amount and send me a new credit card that week,
I agree, with you Alex. The more frequent online purchases are made by a user, the more susceptible they are to these type of frauds. For some reason, hackers are able to access our credit cards information through online shopping, which definitely made me more aware of using my credit card via internet. Alex, I as well use paypal to decrease my chances of fraud again.
Priya Prasad Pataskar says
Alexandra I was about to ask Vu Do if he had lost his credit card, when I read your post where you mentioned that you had not lost yours. In spite of that the hacker could access data. I agree with you that hackers may not physically require a card to steal money. As you mentioned, we enter card details everywhere we shop online, may it be for clothes or paying mobile bills.
I was curious to know if you had shopped online using mobile device or your computer. I wanted to know if mobile applications are more vulnerable?
It definitely depends on the network that you have used. Public WiFi or WiFi where numerous people are connect will have more potential of risk.
Wen Ting Lu says
I agree with you Priya.
Nowadays, technology growing rapidly. People tend to use their mobile devices more than PCs. I don’t think it’s the matter of what device we use for online shopping, it’s more of the effort to download security software and make sure you are connecting to websites using encrypted HTTPS connections. However, it’s always a good idea to shopping online from home because it’s more secure than public WiFi. Mobile applications can be vulnerable when you use it in public because the connections are often insecure, sensitive information such as credit cards numbers, addresses, phone numbers and account number could be intercepted for other purposes.
Brou Marie Joelle Alexandra Adje says
In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
In my opinion, accuracy is the most important because the principal element an auditor reviews is the reliability of the financial statement assertions. The main objective of the work performed by the auditor is that of obtaining reasonable assurance as to whether the financial statements, as a whole, are free from material misstatement, so that the auditor is able to express an opinion on the financial statements and report accordingly in the report.
Abhay V Kshirsagar says
Interesting point, Brou. I thought “completeness” was the most important one because what if, for example, significant liabilities were never recorded by an organization.
Vu Do says
Good point Brou, I can see why you would make accuracy the most important. The information auditors review must be accurate and free from errors or the results you provided would be inaccurate. It would not look good presenting your finish findings to the company and then finding out that information within the report are inaccurate. So it is very important to have information that is accurate since like you said, the auditors responsibilities are to report financial statements that are free from material misstatement.
Sean Patrick Walsh says
3. Have you ever: Been a victim of fraud.
When I separated from the US Navy, I was at the time stationed in Bremerton, Washington. I was moving back to Philadelphia, Pennsylvania, and I owned two trucks at the time. Well, I couldn’t simultaneously drive a moving truck with all of my household goods and both trucks back, so I hired a vehicle shipping company to transport my trucks for me. I was informed that it would take the company two weeks to get my trucks from Washington to Philadelphia. Well, two weeks slowly grew into two months and only one truck had shown up. When I contacted the company there was no response, and I soon received a notice from a vehicle impound in Las Vegas, Nevada that my other truck had been in their custody for over two weeks. So, I had to fly out to Vegas to pay to get my truck out of impound and then drive it back. I ended up getting caught in a blizzard and stuck in St. Robert, Missouri for almost a week. All told when I finally got both trucks to Philadelphia it had cost me close to $10K and I couldn’t really do anything to recover and of the losses.
Said Ouedraogo says
Didn’t you have an insurance?
And sometimes it is better to do research before contracting those vehicle shipping companies because some of them are just a fraud.
Sean Patrick Walsh says
I did have insurance, but my insurance company had a minimum length of time that had to pass in order for the truck to be considered a loss. Also, the police department in Philly was of little help because they informed me that I could not open up a theft case because I paid the business to take the trucks and it was a civil dispute at that point. Frankly, I think the police just didn’t want to be bothered. Being notified immediately of the impound would have saved me quite a bit from getting the truck released and would have more than likely got me through Missouri well before the blizzard came through. I forgot to add in my original post, I am pretty sure that a case in the text book for the Legal class required in Fox Undergrad degrees had the same gentleman sued in the case that I hired to transport the trucks.
Paul Linkchorst says
Hi Sean,
That is a really unfortunate experience. From a standpoint of controlling risks, in hindsight do you think there was anything that you could have done to mitigate the risk of almost losing a truck? Other than insurance and doing research on the company, there isn’t much I can think of that could prevent that fraud from occurring since a lot of trust needs to be put into the moving company to fulfill their duty.
Sean Patrick Walsh says
There isn’t really much else I could have done. The only other thing I could think of is had the company escrow the value of my vehicles before transport to an account I could empty in the event my vehicles were not delivered. I suppose too that I could have purchased a specialized transport insurance, but specialized insurances are pricey by their very nature and the fact that they are hard to quantify and spread the risk for. At the end of the day they I was grateful I lived in a city and had everything I needed within walking distance which made having no vehicle for a while much easier to cope with, and the fact that vehicles can always be replaced made it easier to deal with too.
Yulun Song says
Sean, thank you for sharing your story. It scared me because I also have a couple friends using auto delivery companies to ship cars from Philadelphia to another city, one was to St. Jose and another one was to Texas. Their cars were totally fine, maybe the company is credible and their cars are not good as yours.
Sean Patrick Walsh says
I’m glad it worked out successfully for them. Whenever I hear people discussing shipping vehicles I always cringe a little and offer my experience as an incentive for them to properly vet their shipper.
Seunghyun (Daniel) Min says
Sean,
It is my first time hearing of this kind of fraud. It sounds horrible and I couldn’t imagine how frustrated you were. As you mentioned, having an insurance sometimes means nothing depending on which situations you are involved in. Like your case, you couldn’t get much out of your insurance based on the insurance contract you had with your insurance company. At this point, one control I can think of is having a firm, bold contract with the vehicle shipping company. That could make the company accountable for losing your truck or in your case you could’ve used the contract when asking a help for the police. Above all, I was just upset that you had to use your own money to recover all the damage.
Brou Marie Joelle Alexandra Adje says
Have you ever had evidence of fraud occurring? Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
I have both had evidence of fraud occurring and been pressured by my boss to commit a fraudulent act. In fact, I witnessed my boss using the company’s credit card to go out on happy hours and have fun. Then, she would pressure me to lie on the expenses report and say that the credit card was used for business purpose with clients.
Obviously as an intern, I was “afraid” to say anything about it and, unfortunately did what i was asked for, knowing that it was wrong.
Said Ouedraogo says
It was difficult to “blow the whistle’ knowing that she was your boss and that you were an intern. You will have been seen as the ‘troublemaker”.
Sean Patrick Walsh says
Whenever I see things happening like that at a business, or hear about them happening, makes me wonder what else is going on. Also, how much worse could other things be that might be taking place too. I think a lot of behavior like your example is just the “tip of the iceberg” in a sense. That behavior, and exposing you to it as both an intern and a subordinate, could begin to create a workplace culture that could facilitate worse behavior elsewhere over time.
Paul Linkchorst says
Hi Sean,
Good point that you brought up about these actions being the tip of the iceberg. We talk a lot in our classes about the “tone at the top” and this could be an example where employees don’t respect the policies put in place. If they are willing to share that exploitation with an intern, what else are they doing that they wouldn’t dare to share with an intern? Unfortunately, I think the herd mentality applies to expense fraud like this. What I mean is that if an employee sees that everyone is taking advantage of the system and committing fraud, then why shouldn’t they do it as well.
Annamarie Filippone says
Q1. The concept of “Assertions” is important to accountants. Who else is it important to? Why?
One group that assertions are important to, besides accountants, would be auditors. As we discussed in class, assertions require the existence of controls, which auditors will test. In addition, assertions would be important to any individuals that use an organization’s financial statements, such as investors. This is because these individuals are depending on the accuracy, completeness, etc. of these statements to make decisions that can positively or negatively affect them.
Annamarie Filippone says
Q2. In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
It is difficult to label one dimension as the most important, as all must be included in an effective assertion. But if there’s one I must put focus on, I would choose Accuracy. This means that transactions have been recorded with the correct amounts and within the appropriate accounts. If you do not have accuracy, then there is also no true completeness, valuation, summarization, etc., since they would all be based on incorrect information.
Sean Patrick Walsh says
I agree with you about arguing one assertion as more important than another. I personally feel that completeness and accuracy are both equally paramount. I would consider both of them as important to each other as having two legs is important to walking. I think a person could make an argument for one over the other based upon their personal preference, but like you stated “there is also no true completeness” without accuracy I think could just as easily be flipped and say their is no real accuracy without completeness.
Joshua Tarlow says
I definitely agree that accuracy is the most important of the three if one had to be chosen. Without the accuracy, the other dimensions would most likely not be correct. It is especially difficult to have a correct summary without accuracy because the summary itself would not be correct. It would be difficult to record accurate valuation with inaccurate amounts, and may not faithfully represent the company’s obligation.
Yu Ming Keung says
I agree with you all, many think that completeness is the most important but in my opinion, without accuracy, all other dimensions won’t be valid. It is very important to ensure all the data is accurate because one inaccurate data can result in the auditors issuing wrong opinion.
Annamarie Filippone says
Q3. Have you ever:
-Been victim of Fraud?
-Had evidence of, suspicions of fraud occurring?
-Been pressured (by an employer) to commit an act that was morally or legally questionable? Explain
Luckily, I have never been the victim of fraud. I try to take actions that reduce the chances of this, such as checking my card statements every month. In addition, I have never been pressured by an employer to commit morally or legally questionable acts. At several of my previous jobs, however, I witnessed fraud from my fellow interns. This fraud came in the form of time theft, in which interns reported a larger number of hours than they actually worked in order to receive greater pay.
Paul Linkchorst says
Hi Annamarie,
You brought up a good point that fraud can be as simple as charging more time then was actually worked. In the case of the interns charging more time, do you think at the time they realized they were committing fraud? Also, what do you think their motives were for committing time theft?
Wen Ting Lu says
Paul, you raised some interesting questions.
I don’t think they realized they were committing fraud, I guess most of them were thinking it’s okay or not a big deal for them to report some extra time. I think their motive for committing time theft is very simple, which is to gain more money.
I have seen one of my co-worker in the past sat in the employee breakout room for more than half hour while she is still on the clock. She was literally waiting to clock out. and go home. Was she considered as committing time theft?
Wen Ting Lu says
Add on to my answer to Paul’s question, I think in the case of employee committing time theft touched on two parts of the fraud triangle. Employees must perceive an opportunity to commit and conceal their fraud (which in this case I assume the interns report their own time sheet). In addition, employees are able to rationalize their offenses as something other than fraud activity (such as low compensation, and company is profitable).
Paul Linkchorst says
Hi Wenting,
I had the fraud triangle in mind when I raised the question. In my experiences, those who commit time theft rationalize the theft since they are underpaid and not as “respected”. However, I find the same ones who commit time theft and rationalize this way are those who will not show up to work or go on social media when on the job. I think one of the best ways to prevent time theft is actively monitoring employee time cards.
Wen Ting Lu says
Yes, you are right. From my past experience working at Greyhound Bus Lines, we used to have the card to swipe in and out from work. In addition, we had to clock out for half hour lunch when we work a shift for more than six hours. I have seen some of my co-workers didn’t swipe out for lunch, so they can get an extra half hour pay. However, before we get paid, the operation supervisor usually caught them from time theft when she was checking the bi-weekly time report. As you mentioned, in order to prevent time theft, it’s very important to implement monitoring system to check employees’ time record.
Joshua Tarlow says
I hadn’t considered fraud from this perspective before. I’ve definitely witnessed interns incorrectly recording times. I also agree that they most likely did not perceive it as theft or fraud. Although I think that some did not try and rationalize it, it may just have been easy or not considered that big of a deal. At my internship we were required to record our own hours and our managers would then approve the time sheet at the end of each pay period. But it is difficult for them to verify every day over a two week period unless they closely monitor interns, which is not always possible. This example is different than employees who are required to clock in and out and have much less control over time entries.
I do want to note that many companies have been accused of time theft too. I’ve personally known people who were required to show up early to their shift and were not allowed to sign until it officially started. But were expected to be early to prepare, but were not compensated for that time.
Annamarie Filippone says
Q4. Which portion/step of the Procure to Pay process do you see as the most vulnerable to theft, fraud, or failure of some kind? Explain.
I think the beginning portion of the Procure to Pay process (Steps 1-3) is the most vulnerable to fraud or failure, because it is potentially subject to a great deal of human error or collusion. Incorrect requirements determination would cause failure throughout the rest of the process, which is why extra care must be taken here. Source determination and vendor selection are where the opportunities for fraud arise, with employees of an organizing perhaps coordinating with suppliers in order to benefit (typically in the form of kickbacks).
Deepali Kochhar says
You made a good point Annamarie. Requirement determination is most vulnerable to theft. I would like to quote an example from the GBI case study discussed in the class.
If there is an error in the requirement determination for different parts which are needed to make a cycle due to which some parts are missed, it can lead to delay in assembling of the cycle. This can further lead to delay in order completion and may lead to loss.
Mansi Paun says
You’re right Annamarie. The steps where humans are involved are the most vulnerable to theft, fraud or error as humans have motives to perform fraud and theft. Even when there is no motive and no deliberate false information entered, humans are more prone to making mistakes – stayed up late the night before, missed having coffee, looming deadline, all these could be root-causes due to which incorrect data has been entered.
Yulun Song says
1. The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Assertions are important to accountants, and they are also playing important roles to auditors and business investors. For auditors, they need to obtain a letter containing management assertions from the senior management of a client; otherwise, the auditors cannot proceed with audit activities. One reason is that the inability to obtain management assertions could be an indicator that management has engaged in fraud in producing the financial statements.
For investors, they need to know business assertions because assertions help make better decisions. When an investor views published financial statements and he also has assertions from management, and these are the bases of an investor to make decisions.
Yulun Song says
2. In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
Management assertions include several different assertions: occurrence, completeness, accuracy, timing, classification, stigmatization/presentation, existence, rights, valuation. Each is important. In my opinion, completeness is the most important. It relates to all three classifications: transaction-level assertions, account balance assertions and presentation and disclosure assertions. It helps check whether all the transactions are correctly included in a financial statement, and helps whether the work is accurate and completed.
Wen Ting Lu says
Yulun,
you are right that completeness is important, In my opinion, I think accuracy is more important than completeness because without record accurate information, even all the business events are recorded they do not reflect much value because they are inaccurate.
Ming Hu says
I don’t agree with you. Maybe you are right that without recording accurate information, even all the business events are recorded they do not reflect much value. But without recording complete information, even all the business events are recorded still may lead to fraud, failures, theft, etc. Just look at WorldCom, by removing some existing items from Income Statement, huge losses turned into enormous profits,
Yulun Song says
3. Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
I have not been victim of Fraud because I am always being careful of these kind of things to prevent happening. I am careful to use credit cards and my personal accounts and information. However, my friend’s credit card was used from Michigan and was stolen for around $1,500, luckily he got everything back from the bank. It is true I do have an experience been pressured to commit an act that was morally questionable. I was working in a construction company last year. And our manager was a good friend of our boss, however, sometimes he orders some personal supplies by using companies account from some online websites. So I think that is not good.
Wen Ting Lu says
I agree with you, it’s not a good idea to use business account for both business and personally use, or use personal account for business use. The owner of the construction company did not comply with the economic entity principle, in which the transactions associated with a business must be recorded separately from those of its owners or other businesses. It’s very important for business owners to have a business account ONLY for transactions that are related to that business. For example, for those who work from home IRS has very strict rules about what can be deducted as “business expenses.” If owners use their personal account for business use, then the IRS may frown upon those deductions, even if they are legitimate business expenses. In addition, it is very time consuming when it’s time to file the business return, owners have to filter which transactions are business expenses, and which are personal expenses. Therefore, it is very important to have separate accounts for business and personal use.
Yulun Song says
4. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
Based on http://blog.procurify.com/2013/04/03/the-complete-procure-to-pay-cycle/
The typical procure to pay cycle as below:
Identification of Requirement
Authorization of Purchase Request
Final Approval of Purchase Request
Procurement
Identification of Suppliers
Inquiries
Receipt of the Quotation
Negotiation
Selection of the Vendor
Purchase Order Acknowledgement
Advance Shipment Notice
Goods Receipt
Invoice Recording
3 Way Match
Payment to Supplier
I think the most vulnerabilities take place in the steps made by human errors. So for the first part, identification of requirement it the most vulnerable step to theft, fraud and failure. It is the first step, and is the most important step because if it fails, the rest of steps will be all wrong.
Fred Zajac says
The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
The concept of Assertions is just as important to the stockholders / stakeholders of the company. When the management team develops financial statements, the public perceives this information to be true. The information is announced during the quarterly or annual report shareholders meeting. The results of these reports will influence a person’s decision to buy or sell stock in the company.
Another person who might find these assertions important are the employees. Employee job security is important with many people with families and long-term financial obligations. They may have turned down other opportunities thinking the company was performing well, when in reality it was going bankrupt, leading to a lay-off notice.
Paul Linkchorst says
Hi Fred,
I would agree that the primary purpose of management’s assertions is targeted toward to stockholders and other stakeholders of the company. While it is important for management itself to have accurate financial statements to make decisions off of, it is even more important for investors and other stakeholders like creditors. If I want to give XYZ company one million dollars, I need to know if they are in the financial position to pay me back or not. In this case, management’s assertions in the form of financial statements are the way I can make an intelligent decision if I should make that company a loan or not.
Fred Zajac says
In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
In my opinion, the most important management assertion is Financial Reporting / Company Stability. The management team compensation packages of many publicly traded companies are based around performance and stock price, which go hand in hand. When a company is performing well, the stock price tends to go up, and visa versa. This is what makes the financial assertions the most important. When you look at equities, the shares are spread out over many different accounts, such as retirement, savings, and financial firms managing financial products like ETF’s. The financial integrity affects a vast majority of stakeholder’s vs only those close to the company.
Fred Zajac says
Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
I have been a victim of fraud recently, committed by a restaurant waitress / manager. My wife and I went out to a chain restaurant, ordered dinner, and paid the total bill and tip with a credit card. When my monthly statement arrived, I noticed the total charge for our dinner was $100 more than I remembered. I called the restaurant and manager apologized, gave me back $90, and a free dinner. I was told it was an “honest” mistake. The server must have hit an extra “0” when entering the tip.
The current process for credit card payments are to run the credit card for the bill and leave it open to enter the tip, after the customer has left. This leaves a lot of room for fraud.
Wen Ting Lu says
Hi, Fred
You made a great point. The current credit payment system definitely need to be strengthen to prevent fraud, you are absolutely right that leave the tip open for merchants to enter after customers left leaves a lots room for fraud. Back in high school, I worked as a server in restaurants, I have seen customers just signed their names and leave the tip and total amount section blank. The practice of such negligence give the chance for waiter/waitress to commit fraud.
Also, it’s good that you implemented detective control to mitigated the risk by reconciled your bank statements, I am sure many people nowadays don’t even bother to look at their statements. That’s why preventive control is very important, people need to be trained on how serious lacking knowledge of securing their information assets can impact them.
Joshua Tarlow says
I’ve actually thought about this before when using my credit card at a restaurant. The transaction is approved before the tip is added, which must then be applied to the credit card. The last step doesn’t require any verification from the customer as when the first time the card was run. The receipt that is given does not account for the final transaction amount, so there is no way for the customer to know the final amount charged until later. Definitely aren’t adequate controls in this transaction.
Joshua Tarlow says
I hadn’t considered fraud from this perspective before. I’ve definitely witnessed interns incorrectly recording times. I also agree that they most likely did not perceive it as theft or fraud. Although I think that some did not try and rationalize it, it may just have been easy or not considered that big of a deal. At my internship we were required to record our own hours and our managers would then approve the time sheet at the end of each pay period. But it is difficult for them to verify every day over a two week period unless they closely monitor interns, which is not always possible. This example is different than employees who are required to clock in and out and have much less control over time entries.
I do want to note that many companies have been accused of time theft too. I’ve personally known people who were required to show up early to their shift and were not allowed to sign until it officially started. But were expected to be early to prepare, but were not compensated for that time.
Joshua Tarlow says
I’ve actually thought about this before when using my credit card at a restaurant. The transaction is approved before the tip is added, which must then be applied to the credit card. The last step doesn’t require any verification from the customer as when the first time the card was run. The receipt that is given does not account for the final transaction amount, so there is no way for the customer to know the final amount charged until later. Definitely aren’t adequate controls in this transaction.
Yu Ming Keung says
Hi Fred,
Thank you for sharing your story, I’ve also thought about this case before like Josh and this actually happened to me before. When we hand our card to the waiter at a restaurant, it’s already a vulnerability because the waiter can physically write down our name, card number, security code, or even more. And they can also manipulate the tip amount.
I think it is very important to check on our bank statement every month to ensure there is not suspicious event, but in my personal thought, many people won’t check on their statement just because they are afraid to look at how much they’ve spent for a month.
Fred Zajac says
Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
I believe the step most susceptible to fraud is the Vendor selection. Many organizations have “preferred” vendors, who are the first and sometimes the only vendor employees can use. In order to entice the purchasing manager to buy products, the selling company may offer gifts or promotions to be put on the list.
In my teen / early 20’s, I worked for a maintenance supply company that would charge outrageous prices for standard cleaning products, light bulbs, and paper products. One quart of all-purpose cleaner may cost $2.00 in the store, would cost the buyers over $10, for a very similar product. Here was the catch. We would sell the purchasing manager $200 worth of products for $1,000, but include an xbox and playstation as a “promotional” item. The invoice would show $1,000 of maintenance supplies, but never mention anything about an xbox or playstation. Everyone but accounts payable knew what was going on, but the purchasing managers liked getting “greased” for orders.
Magaly Perez says
Fred, I completely agree that the initial stage of the procurement process has many risk involved with fraudulently activity.
I’m shocked about this real life example but, would you mind elaborating on what “getting greased” means? I’ve never heard that term before and would like to understand how this was beneficial to the purchasing manager?
Also, a follow-up question: Did he ever get caught for doing that?
Fred Zajac says
Laly,
Getting greased means someone is paying off another person for a contract. Politicians getting “greased” by developers is an example.
Here is how it benefited the purchasing manager.
The purchasing manager would be assigned a budget by the CFO. Most of the time, budgets stay static unless there is a disruption in the business. So, as long as the purchasing manager doesn’t exceed the budget, they would continue to get the same amount. The purchasing managers are smart and realize the CFO has over budgeted this quarter, but is threatened that the budget will get cut if they don’t spend the money. The purchasing manager doesn’t want to get the budget cut, so he will have to spend it.
This is where we come in. The purchasing manager knows he can perform the duties of the department for only $10,000 but the CFO gives them $20,000. So, we tell the purchasing manager that they will get the supplies they need and promotion items for buying from us. The purchasing manager spends the $20,000 with us. We send them $10,000 in supplies, but mark them up to $20,000, and send them $5,000 in “promotional” items, like xbox’s, autographed sports items, heck, we would tell them to pick what they wanted off a website and let us know.
So, the purchasing manager gets the supplies, and a “promotion” or a gift, but the invoice only shows $20,000 in supplies. Never mentioning anything about the “promotional” items the purchasing manager received.
Summary, the purchasing manager used company money to purchase personal items and the company I worked for hid the sale of the xbox in the cost of supplies.
For the record, I quit this job when one of my buyers, whom I developed a friendship with got fired because the management figured out what was going on. This is when I first felt the word “integrity”.
Magaly Perez says
The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Management’s assertions are extremely important to accountants, as well as auditors. They assist auditors by allowing them to observe a wide range of issues that are relevant to the validity of financial statements. The auditors test the validity of these assertions by conducting a number of audit tests.
Magaly Perez says
2. In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
I believe accuracy is the most important aspect of an audit review. The main purpose of the work performed by the auditor is obtaining reasonable assurance that the financial statements are correct.
For example, an auditor needs to audit that a company’s inventory exists, which refers to the validity (reasonable assurance) of their financial statements. As a result, the auditor will perform a physical inventory check to make sure that the inventory recorded on the financial statements is valid. From there they would issue an opinion and by doing so, the auditors needed to know the different scopes of management’s assertions so they can properly perform their audit.
Magaly Perez says
4. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
I believe the beginning of the procurement process is the most vulnerable to theft or fraud. From the reading and class discussion, we can see that theft and fraud can happen in multiple ways and that many fall victims to it, including myself.
The first process of procurement is the supplier selection. The vulnerabilities that can affect this phase is misrepresentation of the supplier. Fraud in this phase is based on vendors who are given a contract, but in reality their selection for the contract we based on fraudulent activity. By misrepresentation a vendor could disguise themselves as a reputable business, but in fact be bankrupt, and without this information companies award these contracts to them, without knowing the risk involved. As a result, a company will most likely lose money and never receive their goods that they purchased.
Deepali Kochhar says
Q 1. The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Assertion can be important criteria in Material requirements.
Material correctness requirements define the logic of calculation, evaluation, and reporting of certain financial statement items within external reporting. Implementation of these requirements in the form of IT supported processes requires various application controls in order to guarantee the fulfillment of specific audit relevant criteria in the production of the figures and for this reason assertion is important.
These criteria have established as assertion and are summarized as CEAVOP:
• Completeness
• Existence
• Accuracy
• Valuation
• Ownership
• Presentation
Deepali Kochhar says
Q 3. Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
I have never been a victim of fraud. I always try to take preventive measure to keep my important information safe. For example, I always keep a backup copy of all my important documents so that in case I miss them somewhere, I am always up with the backup. I never leave my personal or office laptop unattended.
I have been an evidence of fraud occurring at one of the organization’s I have worked with.
The interns were not issued an employee card and were asked to sign and enter in the premises of the organization. So there was no exact record of their work hours. Also they were allowed to use their personal USB on office laptops because of which they were easily transferring important information to their personal devices. There was no restriction on the use of printers without id cards and they were using the printer for personnel use.
Abhay V Kshirsagar says
Thank you for providing the example. It does appear that preventive controls weren’t at place at that organization that led to waste of company resources.
Did you ever bring it up to the concerned personnel?
Fangzhou Hou says
Question: The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Indeed, the concept of Assertions is important to accountants, but it also important to auditors and Investors. From auditors’ perspective, when they audit the financial statements of a company, it’s important to find out what management’s assertions are supposed to audit. For instance, if the assertions are related to assets or liabilities in the financial statements, auditors should ensure the accuracy of the financial statements, and make sure the related amounts are appropriate.
From investors’ perspective, some of them may barely understand the industry and have limited understanding of company’s financial statements. In this case, the accurate and clear management assertions can help investors better understanding the company and making good decisions.
Yu Ming Keung says
1 The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Besides accountants, management’s assertions are also very important to auditors. When it comes to the audit of a company’s financial statement, where the auditors rely on management’s assertions regarding the business, the auditors test the validity of management assertions by conducting a series of audit tests.
For example:
Auditors need to audit that salaries and wages expense that has been incurred during the period in respect of the personal employed by the entity, which refers to the “Occurrence” dimension. Therefore, the auditors must perform a set of payroll audit procedures such as verifying active paid employees, verify pay rates and hours paid
Yu Ming Keung says
2 In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
It is actually difficult to determine which management assertion is the most important one as each assertion functions differently. If any of them is missing, the auditor’s opinion won’t be trustworthy at all.
I would choose “Accuracy” is the most important assertion because a company can easily commit a fraud by cooking the book and it is very difficult for the auditor to detect all the fraud. Auditors review the accuracy of amounts and other data to ensure the company has recorded transactions and events appropriately.
Example: Worldcom cooked its book by inflating its asset by as much as 11 billions
Yulun Song says
Yu Ming, Thank you for your sharing. In my opinion, completeness is more important than accuracy in this topic. a business or an organization needs to record all events first and make sure the completeness of all information or data related to the event. and then other terms can be involved. if a business illegally deleted some important data, other jobs may not find it.
Yu Ming Keung says
3 Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
I have been a victim of debit card fraud last week with my card being used three times without my authorization in another state, Binghamton, NY. I was shocked because I have never been to this city in New York. I received the message alert from Citibank saying that they have identified possible fraud on my bank account. Eventually, I contacted the Fraud Prevention Department to report the fraudulent transaction on my card. Citibank refunded the credits into my account, disabled my debit card and mailed me a new one.
In my opinion, even though I put all my controls in place, such as I never shared my card with anyone and lost my card or wallet. There is still a risk that the hacker can get assess to my account information through online shopping or they can install the malware onto the checkout card reader to steal my card information to commit frauds.
I have never been to pressured to commit an act, but if I have, I would refuse to commit an act based on my moral standard, and report the fraud to upper management.
Joshua Tarlow says
My credit cards have also been compromised this year. Feels more and more common place every year. I’ve found it better to use a credit than debit if you’re able to since it doesn’t take money out of your account. That way if there is an issue, don’t have to wait for the funds to be deposited back into your account. I definitely agree that you can take all of the right precautions and still have issues through no fault of your home. A few years ago my wife’s credit card account had fraudulent activity and had a new one mailed. Before the card had arrived, yet alone activated, it already fraudulent transactions on it. Still do not know how that happened and American Express didn’t seem to have a good explanation.
Yu Ming Keung says
Josh,
Thanks for your suggestion, you are completely right. Using a credit card is easier to prevent fraudulent transactions since it does not take money out of my account. Your case sounds very suspicious how transactions went through a card when the card is not activated. American Express still owes you a valid explanation.
Yu Ming Keung says
I believe the step of P2p process most vulnerable to theft, fraud or failure happens when processing the invoice or payment and selecting vendors.
I believe almost everyone has the experience where you write a wrong check or invoice. It is very easy to modify the vendor payment information or manipulate the clients name, address on voucher / refund.
Price can increase in purchase order to establish a kickback program which is defined as a form of negotiated relationship between supplier and vendor in which a commission is paid to the bribe-taker in exchange for services rendered.
For example: a building contractor might give a portion of what he or she is paid to a government official who approved the building plans for the project. This part invoice selecting vendors and issuing the commission in the contract.
Yu Ming Keung says
This answer is for Q4. Sorry.
Jaspreet K. Badesha says
4. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
Payment processing in my opinion is the most vulnerable to theft, fraud or failure of some kind. When payments are being processed they can have payment information stolen and then used for fraud. Once the information is taken it can be used or sold to others for them to use. This is vulnerable because people have access to the data and there is no real way to secure this information.
Jaspreet K. Badesha says
Apologies, this is supposed to be an answer not a reply.
Wen Ting Lu says
3. Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
Fortunately, I have never been a victim of fraud. I have a habit of keep all the receipts and reconcile the receipts with the bank statements every month. Also, I always log out my work computers when I walk away from my seat, and keep my personal laptop in save place. I never leave or share my sensitive information such as SSN #, passwords in public. In addition, I save a backup copy of important files to prevent them being loss or misplaced somewhere. I think it’s important to have preventive and detective controls to mitigate the risks of becoming a victim of fraud.
I have encountered suspicion/evidence of fraud while I was preparing tax return for business owners. In order to reduce tax liability, many of the business owners reported a large amount of meal and entertainment, even travel expenses. I am sure that part of the expenses are for personal use. As an accountant, I was been pressured by clients to commit an act that was morally or legally questionable. Tax payer asked me to markup the expenses, and report the expenses that are not exist. I don’t want to put myself in trouble because I know that the clients will pass the buck to me if anything happens. Therefore, I performed my due diligence. I refused clients who don’t have the evidences such as receipts to support that the expenses are legitimate business expenses. Also, I alerted clients by doing so will triggered audit.
Yulun Song says
Wengting, thank you for your story. On the side of personnel, most of people would like to reduce their tax liabilities. and they also know that is illegal. plus, there are lots of companies that use legal ways to do illegal things, for example, reducing tax liabilities, avoid tickets, or other law issues. It is hard to avoid because the law can not be 100% perfect. On the side of a tax staff, it is a stress if people put pressure on you to do illegal things. You did good jobs and performed integrity.
Priya Prasad Pataskar says
Q] Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
I have experienced a fraudulent activity in my life. I was did take care to not fall prey to it, however I was almost on the verge of being a 100% victim.
Before travelling to Philadelphia, I was looking for houses to rent nearby campus on airbnb and I found a good match. I shared a link of that with my would be roommates and we all liked the house. We got in touch with the owner and inquired about utilities and we let him know we were interested. Within a week, we got a mail from airbnb confirming that the house is verified and that we could proceed with the payment within 1 month of receiving that mail. They send us a link to the payment and further process in the same mail. The mail stated we needed to pay directly to owners account as owner had chosen no other option with airbnb. We were worried to proceed as paying full amount upfront to owner was risky.
We spoke to few friends who had used airbnb and they told us that airbnb always asks to pay to either airbnb account or cash on arrival. In our case airbnb asking us to pay to owner’s account was suspicious.
We had some questions regarding the payment process so we contacted airbnb via the link given in the mail. We found that in the mail, the option to chat live with airbnb representative always redirected to 404 Error: Page not Found. This was again suspicious. So we tried to speak to airbnb via the live chat link provided on their official website instead of following the link via the email we had received. This time the chat worked and what we came to know was a shock. Airbnb never asks users to pay to owners account. They verified our house and told us that it was a fraud.
What was the case?
The hacker has actually tried phishing attack via the email he sent us. He had created his profile on airbnb and that is how he got our emails.
What we did?
We contacted airbnb to blacklist that account and they did.
Mansi Paun says
Q2 In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
A2 Different dimensions of Management Assertions can be listed as below :
1) Occurrence
2) Existence
3) Timing (cutoff)
4) Completeness
5) Accuracy
6) Valuation
7) Rights (Ownership)
8) Summarization / Presentation
To me, Accuracy is the most important of all. Assertions are what the management claims. If the management cannot claim accuracy in all their transactions, it is a red flag right there. Without accuracy in transactions, all other assertions, however true cease to hold any value.
Wen Ting Lu says
1. The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Assertions are management’s claims about the recognition, measurement, presentation, as well as disclosure of information presented in the financial statements. The concept of “Assertions” is not only important to accountants, it is also important to managers, auditors and investors. It is very important for managers to have accurate assertion because what they provided in assertion will have impact on auditors and investors’ decisions. Also, assertions require the existence of control. If managers provided inaccurate assertion, it represents that the business was inefficient in internal control, and managers and even business’ reputation will be ruined as well. In auditors’ perspective, they evaluates financial records based on assertions embedded in the financial statements. Auditors typically use assertions to help them to figure out what audit tests they should perform and what information they should gather. Assertion is also important to investors because they make investment decisions based on the financial statements. Therefore, an assertion plays a very essential role for basically anyone who reviews and uses the company’s financial statements.
Binu Anna Eapen says
Yes totally, I agree with you that assertions are important to anyone who reviews and uses the company’s financial statements.
Yulun Song says
thank you for your sharing Weng Ting,it is so true that management should provide accurate assertion first to avoid further auditing or other related works.
Joshua Tarlow says
I have only been a victim of fraud when my credit card or debit has been stolen and used to make fraudulent transactions. Credit card fraud is common now so my experience is definitely not unique. But there have been multiple occasions when either the bank caught the activity, I noticed suspicious transactions on my account, or I’ve been sent a new card because I used it at a vendor that experienced a breach or security incident. I have learned to use my credit card instead of debit card for most transactions, especially online because money is not taken out of my checking account and credit cards typically have more consumer protections than debit cards.
– Had evidence of, suspicions of fraud occurring?
There was definitely evidence of fraud in many of the examples because my cards were used to make unauthorized transactions. In one example when I was deployed while in the military, my debit card was used to make $300 of purchases at Disneyland in Anaheim. There was evidence that I was clearly not in the United States, nor able to make that transaction. I discovered the charges quickly and my bank deposited the money back into my account a few days after I contacted them.
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
When I was in the Army I was responsible for hazardous material and ammunition for my battalion, which meant that I was usually accountable for most of these issues. There were definitely times when my superiors wanted me to cut a corner in interest of meeting a deadline. I was always careful to cover everything because I was ultimately responsible. And although something may have seen minor, if there were to be an issue, the consequences could be significant because of it involved hazardous material which is often times dangerous. I knew if something went wrong, I would be blamed regardless of the circumstances and figured the initial blow back would be much less than if I acquiesced and there was an issue. I’m sure everyone who has had a job has faced pressure to cut corners in some way, which be for something very minor or significant.
Wen Ting Lu says
In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
I believe among several dimensions, “Accuracy” is the most important dimension. “Accuracy” means amounts and other data relating to recorded transactions and events have been recorded appropriately. In my opinion, I think without accuracy even all other dimensions are properly followed they do not reflect much value because the information are inaccurate. Therefore, I truly believe that all other dimensions of Management Assertions only hold values when the assertions are accurate.
Wenlin Zhou says
The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Audit Assertions are the implicit or explicit claims and representations made by the management responsible for the preparation of financial statements regarding the appropriateness of the various elements of financial statements and disclosures.
Assertions assist auditors in considering a wide range of issues that are relevant to the authenticity of financial statements. The consideration of management assertions during the various stages of audit helps to reduce the audit risk.
Wenlin Zhou says
In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
Accuracy is the most important, which is the transactions are recorded at the appropriate amounts. This means that there have been no errors while preparing documents or in posting transactions to ledgers. What’s more, Assets, liabilities and equity interests have been included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments have been appropriately recorded and related disclosures have been appropriately measured and described.
Jaspreet K. Badesha says
3. Have you ever:
– Been victim of Fraud?
– Had evidence of, suspicions of fraud occurring?
– Been pressured (e.g. by an employer) to commit an act that was morally or legally questionable?
Explain
1. I have not personally been a victim of fraud; however, my father has been a victim of credit card fraud a few times. The first we were traveling to Canada and there were several charges that were made locally as we were not in the state. We had proof of travel during the time line. The second time this occurred my dad was admitted into the hospital during the time his cards that he had on him were being used around the vicinity of the hospital. Even though most card companies say you have full protection against fraud, its hard to say you were a victim of fraud unless you have proof that you weren’t there.
Jaspreet K. Badesha says
1. In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
Assertion is a confident and forceful statement of fact or belief, the different kinds of assertion dimensions are listed below:
1. Occurrence
2. Existence
3. Timing (Cut off)
4. Completeness
5. Accuracy
6. Valuation
7. Rights (Ownership)
8. Summarization / Presentation
All assertion dimensions are important but the most important assertion dimension in my opinion is completeness. This makes sure that all existing transactions are recorded and that all records that should be included should be fact included. This ensures that we have the whole picture. That all assets, liabilities, and so on are included in the correct places.
Jaspreet K. Badesha says
4. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
Payment processing in my opinion is the most vulnerable to theft, fraud or failure of some kind. When payments are being processed they can have payment information stolen and then used for fraud. Once the information is taken it can be used or sold to others for them to use. This is vulnerable because people have access to the data and there is no real way to secure this information.
Jaspreet K. Badesha says
1. The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
The concept of assertions is important to Auditors in addition to accountants. “Auditors are required by ISAs to obtain sufficient & appropriate audit evidence in respect of all material financial statement assertions. The use of assertions therefore forms a critical element in the various stages of a financial statement audit. Assertions assist auditors in considering a wide range of issues that are relevant to the authenticity of financial statements. The consideration of management assertions during the various stages of audit helps to reduce the audit risk.”
http://accounting-simplified.com/audit/introduction/audit-assertions.html#sthash.3J7Pkl59.dpuf
Wen Ting Lu says
3. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
The most vulnerable portion of the Procure to Pay process is the first three steps:
1. Determination of requirements
2. Source determination
3. Vendor Selection
The reason why these steps are most vulnerable for theft and fraud is there are a lots of human involvement. Human make errors all the time and are very easy tempted by money or things that are on their interests. An employee might committing fraud if he or she has the opportunity, under pressure, and rationalize his or her behavior by believing that they have genuine reasons for committing fraud. Some common human errors are data entry errors, such as wrong address entered, invoices sent to wrong customers, and items didn’t match with what customer ordered, etc. In addition, kickbacks scheme might take place in vendor selection. In many cases, there are unwritten clauses in supplier contracts. Suppliers will give cash or freebies to cover “commission “.
Wen Ting Lu says
Some common controls to reduce the risks of theft and fraud are segregation of duties, use three ways match wherever possible, have purchasing policies, implement procurement Independence with suppliers, and monitor vendor/source/price decisions, etc.
Ming Hu says
Q: In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
The several dimensions of Management Assertions we talked about are as follows:
Occurrence
Existence
Timing
Completeness
Accuracy
Valuation
Rights
Summarization
Presentation
As for me, each of them is very important, but the most important one is Completeness. Completeness indicates all existing transactions are recorded and what should be included are in fact included. From the real-world case we discussed in class about WorldCom, it was lack of completeness of its assertion, some existing transactions were removed from income statement, that led to such a shocking fraudulence.
Yulun Song says
Ming, Thank you for mentioning the case of WorldCom in your discussion. They cooked the book by removing data from income statements, leading huge influence and fraudulence.
Ming Hu says
Q: The concept of ‘Assertions’ is important to accountants. Who else is it important to? Why?
Assertions are not only important to accountants, but also to auditors. Qualified auditors are engaged to examine the financial statements, including related disclosures produced by management, to give their professional opinion on whether those statements fairly reflect. And in many cases this is required by law.
Tiesha Christian says
Ming Hu – I agree, assertions are also important to Auditor’s. The point you made is true. How about when it comes to IT Auditing? It applies the same in a different context. Instead of reviewing financial statements, an auditor may review user (privileged) access to tools that generate financial statements, rights to promote code into production etc.
Jianhui Chen says
Q2.
Dimensions of management assertions: occurrence, existence, timing, completeness, accuracy, valuation, rights, summarization, and classification. I think “accuracy” is the most important, if the information and data are not accurate, other dimensions such as valuation, summarization would not be accurate as well.
Jianhui Chen says
Q1. Assertion is important to auditors, because a letter containing the management assertions from the senior management of a client is necessary for an auditor to proceed with audit activities.
http://www.accountingtools.com/questions-and-answers/what-are-management-assertions-in-auditing.html
Tiesha Christian says
Jianhui – Very good point and great link! Assertions are important in the audit world. It is pretty much what audits revolve around. What was learned through inquiry, what was seen, what is factual? These are some questions I ask myself after walkthroughs with clients, during my audits. It all goes back to assertions!!
Abhay V Kshirsagar says
In class we discussed several dimensions of Management Assertions. Which do you believe is the most important? Why?
Assertions important for the class that we discussed are:
> Occurrence/Existence (timing)
> Completeness (are events recorded)
> Accuracy/Valuation (accuracy means if it is correct? valuation means if its measured correctly)
> Rights (do I truly own it at the given date?)
> Summarization/presentation (am I summarizing it correctly?)
I think that the completeness is the most important assertion. Completeness asserts that all business events of the company are recorded.
For e.g.: Hidden liabilities can be a biggest concern for auditors if the company doesn’t record them.
Yulun Song says
Totally agreed! And good explanations for each term listed above. Completeness is the most important than other terms because first thing you have to do is to make sure that all information and data recorded appropriately.
Tiesha Christian says
Abhay – I like the points you made. Especially the point about completeness. I know for me in my current role, Completeness and accuracy are things that come up alot in meetings, audits, etc. It is a very valuable piece in audit. Especially when attestations are said to be occuring.
Tiesha Christian says
Q4. Which portion / step of the Procure to Pay process do they see as the most vulnerable to theft, fraud or failure of some kind? Explain
The most vulnerable parts of the Procure to Pay process are the Vendor / Purchase Order, and Goods / Service Receipt process. Ways the Vendor process can be vulnerable are lack of vendor validity. Inappropriate practices of authorizing purchase. Lastly, this process posses a big vulnerablity to inproperly retaining of records. The second process Good/Service receipt process has very similar vulnerabilites. Such as not being able to keep records of goods / services received and big one inventory manipulation.
Paul M. Dooley says
I fortunately have not been a victim of fraud, that I know of. I was never pressured to do fraudulent activities by an employer either. I have however witnessed colleagues committing fraud. I was an outside sales rep and we were to be reimbursed mileage expenses instead of given a company car. There were some controls in place through the SAP system that was used to request payment for reimbursement and that was if any reimbursement payment was over $1000 there would be a flag and it would be reviewed manually by an auditor. Anything under $1000 usually just flowed through automatically for payment unless it was randomly selected. Many of my colleagues would input mileage for in person meeting that never actually occurred.
Paul M. Dooley says
In my opinion, while all assertions are of importance, the most critical in reviewing and giving an accurate picture is the accuracy of the data reviewed. Again, as with most controls, humans are the most difficult element to control and with the validity of the information that was entered. If inaccurate data was reviewed the entire picture of the audit would be in question.