Nanyang Technological University

Nanyang Business School

AC2104/AC3101 - ASSURANCE & AUDITING
Semester 1, 2016-17

Outline for Seminar 13:

Fraud and Illegal Acts
Learning Objectives
Develop an awareness of commonly occurring frauds and illegal acts
Describe auditors responsibility for the prevention, detection and reporting of frauds and
illegal acts
Identify and evaluate significant fraud indicator factors (fraud triangle and red flags)
Determine relevant procedures for detecting fraud and illegal acts
Review of mid-term test
Required Readings
EMGP: Ch 4 (LO 6-10)
SSA 240, 250, 330
Further readings
Association of Certified Fraud Examiners (ACFE's) Report to the Nations on
Occupational Fraud And Abuse 2016 Global Fraud Study (Available at:
http://www.acfe.com/rttn.aspx)
Pre-seminar Activity
McGraw-Hill Connect Pre-seminar Activity
Seminar Requirements
1. Mini-group presentation (Team 8b)
Required:
(a) Describe auditors responsibilities relating to the detection of fraud.
(b) Describe the three conditions that are generally present when fraud occurs.
(c) What are the objectives of the brainstorming meeting that is held among the audit
engagement team members?
(d) A purchasing agent systematically paid higher-than-market prices for goods received
from an important vendor. In turn, the purchasing agent received various perks from the
vendor and kickbacks that amounted to more than half of the purchasing agents regular
annual salary.

Seminar 13: Fraud and Illegal Acts

Briefly indicate:
(i) How the defalcation would likely have been detected by the auditor. Assuming the
amounts are material, should most auditors have detected the defalcation? Explain.
(ii) What type of control procedures would have been effective in preventing or detecting
the defalcation?
End of Mini-group presentation
2. Presentation Topic 6
Part I:
Refer to Appendix I: The SECs case against California Micro Devices: A lesson in using
professional skepticism and obtaining sufficient appropriate evidence (Issues in Accounting
Education, 2011, Vol 26 (1))
Required:
a) The SEC concluded that Michael and Brian engaged in improper professional conduct
as a result of their reckless failure to comply with professional standards. Explain the
basis for SECs conclusion. Organize your response according to the three specific
areas of the audit discussed in the case namely, write-off of accounts receivable,
confirmation of accounts receivable, and sales returns and allowances (base your
answers on the Singapore Standards on Auditing).
b) Explain the challenges in using financial information from previous periods in
performing trend analysis (reviewing the changes in an account balance over time) in
this audit.
c) The auditors work papers were deficient in several respects. Describe the specific
deficiencies with the work papers in this audit.
d) Describe the conditions that existed during this audit that were indicative of the risk of
material misstatement due to fraud.
e) Did the auditors respond appropriately to the assessed risk of material misstatement
due to fraud? Use specific examples from the case to explain your answer.

Part II:
Based on one or more recent media articles (of not more than 12 months old), describe a reallife situation where a company suffered a financial loss or other negative consequences due to
fraudulent activity. Discuss whether the external auditor could have discovered the fraud.
Include a copy of the media article(s) in your submission.
End of presentation