Internal Auditors' Assessment of Fraud Warning Signs: Implications for External Auditors
Internal audit personnel are in a unique position to alert external auditors to the various warnings signs that can indicate the presence of fraud. Cooperation between internal and external auditors can make audits more effective. The authors' research indicates that internal auditors generally attach the same importance to warning signs as external auditors; however, they tend to overemphasize attitude or rationalization factors and underrate corporate governance characteristics.
Expanded Guidance for Auditor Fraud Detection Responsibilities
The ASB issued SAS 99, Consideration of Fraud in a Financial Statement Audit, as part of its effort to craft stronger auditing standards that improve the likelihood that auditors will detect fraud. The new standard emphasizes the need for increased auditing planning, heightened professional skepticism, a greater understanding of fraud motivation, and more focus on specific risks, such as improper revenue recognition and management override of internal controls.
Accountants, Corruption, and Money Laundering
Recent legislation has increased accountants' obligations to join in the fight against corruption and money laundering. Companies engaging in international trade must ensure that their internal controls successfully prevent money laundering and bribery. The authors review the provisions of the USA Patriot Act as well as the findings of Transparency International's corruption perception index.
An Analysis of Non-GAAP Line Items in Income Statements
Calculating an accurate, informative, and comparative figure for results from operations is a nearly impossible task. The wide disparity of practice across companies makes it difficult to determine whether a non-GAAP line item is providing greater transparency or being used to improperly manage earnings. A survey of the many line items found on financial statements, analyzed within the context of company and historical performance, can provide at least a benchmark for evaluating non-GAAP disclosures. This benchmark can be the first step in a thorough evaluation of a company's operations.
Income Taxes In The Cash Flow Statement
SFAS 95 classifies income tax payments as operating outflows in the cash flow statement, even though some income tax payments relate to gains and losses on investing and financing activities. As a result, a company's net cash flow from operating activities (NCFO) is not as representative of operating performance as it could be. The author argues for amending SFAS 95 to require the allocation of income taxes to the operating, investing, and financing sections of the cash flow statement.