Corporate Ethics & Internal Control

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2012 Ronald R. Tidd Ethics, Fraud, & IC

ACCT 455-

Accounting Information Systems

Ronald R. Tidd, Ph.D., CPA (inactive)

www.cwu.edu/~tiddr/Index.html

[email protected]
http://www.cwu.edu/~tiddr/Index.htmlhttp://www.cwu.edu/~tiddr/Index.html


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ACCT 455

Ethics, Fraud, & Internal Control

Objectives & Todays Outline

1. ObjectiveDiscuss Ethics, Fraud, & Internal Control

2. Outline

1. Homework 12. WebQuest 2


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AIS

Ethics, Fraud, & Internal Control

Facts

Ethics define the principles that humans use toguide them in distinguishing between right and

wrong and taking appropriate actions.

The focus in business is on the ethical behaviorof those who control, access, and make

decisions about organizational resources.


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AIS

Ethics, Fraud, & Internal Control Issues

1. Why is business ethics important?

2. What guidelines do we have for ethicalbehavior?

3. Where does fraud fit in?

4. Why do internal controls matter?5. Why do accountants care?


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1. Why is Business Ethics Important?

Employees

Investors

Andersen

YOU!


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1. Why is Business Ethics Important?

Ethical BehaviorTrust

What if no trust

(think onlineand international commerce)

What if no trusted business adviser
http://en.wikipedia.org/wiki/File:Internet_dog.jpghttp://www.forbes.com/sites/jackperkowski/2012/04/18/protecting-intellectual-property-rights-in-china/http://clientsolutions.cpa2biz.com/http://clientsolutions.cpa2biz.com/http://www.forbes.com/sites/jackperkowski/2012/04/18/protecting-intellectual-property-rights-in-china/http://en.wikipedia.org/wiki/File:Internet_dog.jpg


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2. Guidelines About Ethical Behavior

Key Questions

1. How do managers decide what is right?

2. How do they achieve it?


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8


(Table 3-1)


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What Are They? How do we address them?

Role of management-

Establish ethical environment

Ethical development-

Continuous

Ethical decision criteria

Proportionality (benefits > risks) Justice (benefits to those who take risks)

Minimize (mitigate?) risk (minimize risks & avoid

unnecessary risk)


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Technologys Impact?

Production/Information Technologies

Through History

Agricultural Age

Industrial Age

Information Age


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Technologys Impact?

Areas of concern

Misuse Privacy

Security

Theft

Property Rights

Areas of concern

Equity in Access

Race Gender

Socio-economic

Environmental

Unemployment &

Displacement
http://community.seattletimes.nwsource.com/archive/?date=19970409&slug=2533005http://earth911.com/recycling/electronics/e-waste-harmful-materials/http://earth911.com/recycling/electronics/e-waste-harmful-materials/http://community.seattletimes.nwsource.com/archive/?date=19970409&slug=2533005


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3. Where Does Fraud Fit?

The Basics

What is fraud?

Historically:1. False representation

2. Material fact

3. Scienter (intent to deceive)

4. Justifiable reliance

5. Injury or loss


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The Basics

How does it occur

By managementAbove internal

controls

Use of financial

statements Complex

transactions

How does it occur

By employees Misappropriate

asset

Convert to cash

Conceal crime


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The Basics Why does it occur?

Rationalization/AttitudePredisposition (weak personal characteristics)

Need (situational pressure, a.k.a., Life)

Opportunity
http://www.mikecampbell.biz/2009/01/fraud-triangle.html


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No Fraud

Fraud

Pressure Opportunity

Ethics

Ethics

OpportunityPressure

15


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Computer Fraud/Crime Techniques

Where Can It Occur

Technology Hardware

Software

People

Policies,

Procedures,

Processes

General Concept

Misappropriate

Alter

Destroy


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Computer Crime Techniques

General

Misappropriate

Alter

Destroy

Data Collection

Data Processing

Program fraud Operations fraud

Database Management

Information generation

Scavenging Eaves dropping


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4. Why Do Internal Controls Matter?

Supports Ethical Behavior

Proper Use of and Stewardship over

Organizations Assets

SOX- 202

Auditor independence

Corporate governance and responsibility Disclosure requirements
http://c/Users/TiddR/Documents/!CWU/!!Current/01%20Teaching/Boeing_PS_3-9-12_SECURED.pdf


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What is Internal Control?

Policies, practices, and

procedures that ensure

that the appropriate

actions are taken in

response to identified

risks

Goals

Safeguard

resources Ensure accuracy

Promote efficiency

Measure

compliance withpolicies &

procedures


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What is an Internal Control Structure?

Environment

Organizational structure

Board of Directors & Audit Committee Mgmt. Philosophy & style

Delegation procedures

(authority & responsibility)

Performance evaluation

External influences


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What is an Internal Control Structure?

Accounting System &General Procedures

Authorizations

Access controls

Accounting records

Functional

segregation Independent

verification

Accounting System &General Procedures

Information

processing controls

Performance

reviews

Physical controls Supervision


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Segregation of Functions

Manual System:

Segregation between

Authorizing &

processing a

transaction

Custody of an asset Custody of

accounting records

for asset

Computerized System:

Segregation between

Program coding

Program

processing

Programmaintenance


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Authorization

Authorization

Authorization

Processing

Custody Recording

Task 1 Task 2 Task 2Task 1

TRANSACTION

Control

Objective 1

Control

Objective 2

Control

Objective 3

Custody

Recording

Pg. 116


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Physical Controls

Authorization-

Used to ensure that employees are carryingout only authorized transactions.

May be general (everyday procedures) orspecific (non-routine transactions).

Supervision-

Compensation for lack of segregation; somemay be built into computer systems


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Physical Controls

AccountingRecords-

Provide an audit trail

AccessControls-

Help to safeguard assets by restricting physicalaccess to them

IndependentVerification-

Reviewing batch totals or reconciling subsidiaryaccounts with control accounts


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Computer-Based Information Systems

Transaction Authorization

Rules are often embedded within computer

programs

Supervision

Ability to assess competent employees becomes

more challenging due to the greater technicalknowledge required


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Segregation of Duties

Program may perform many tasks that aredeemed incompatible;

Separation between program coding, programprocessing and program maintenancebecomes very important

Accounting Records

Ledger accounts and sometimes sourcedocuments are kept magnetically, and novisible audit trail is readily apparent


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Access Control

Data consolidation exposes the organization to

computer fraud and excessive losses from

disaster

Independent Verification

Many tasks are performed by the computer soneed for an independent check is not necessary

However, the programs themselves are checked


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Strategies

Prevent

Costly, so used where greatest risk

Detect

Less costly, so used where lesser risk

Correct / Recover


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What is Auditing?

The Purpose

Provide attestation

By independent

party

Conformity with

GAAP

The Process

Check system of

IC

Assess audit risks

Conduct auditprocedures
http://localhost/var/www/apps/conversion/tmp/scratch_8/Price%20of%20Ethics.pdf


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What is Auditing?

The Standards:

Statements on Auditing

Standards(SAS)

Authoritative

pronouncements

Follow or Justify deviation

The Standards:

SAS 99

Internal controlstructure

Audit risk

Audit procedure


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5. Why Do Accountants Care?

1. Audit/Assurance/Attestation (Risk and Reputation)

Systems of Internal Control

Identify Potential Legal Liabilities

Going Concern

2. Consultants/Advisors/Designers

3. Systems Users


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2012 Ronald R Tidd Ethics Fraud & IC

Corporate Ethics & Internal Control

Documents

Transcript of Corporate Ethics & Internal Control