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CFE-Legal Elements
CFE-Legal Elements of Fraud
| Question | Answer |
|---|---|
| What is positive reinforcement? | Presenting a positive stimulus in exchange for the desired response |
| What is negative reinforcement | Withdrawing a negative stimulus in exchange for the desired response |
| What is punishment | Either a negative stimulus or withdrawing a positive stimulus when presented with undesired behavior |
| According to the instrumental perspective why do people obey the law | Because they fear punishment for noncompliance |
| According to the normative perspective, why do people obey the law? | Because they feel that braking the law is morally wrong and that laws should be obeyed even when they do not agree with them |
| What is the routine activities theory of crime causation | The theory that both the motivation to commit crime and the supply of offenders is constant and that the activities and circumstances of potential victims are determining factors in crime |
| What is the theory of differential association | People learn the values, attitudes, techniques"& motives for criminal behavior by communicating/participating in intimate personal groups in a way that results in an excess of definitions favorable to violations of the law |
| What is the social control theory of crime causation | The stronger of a person's bond of affection for other law-abiding people is, the more likely the person is to consider that factor and to be deferred from committing a criminal act |
| According to behaviorism, what is the least effective method of changing criminal behavior | Punishment |
| What are the components of classical criminology | People have free will, criminal behavior is more attractive when games are estimated to be greater than losses, swift and severe penalties to crime are more likely to deter criminal behavior |
| What is the theory of anomie | Criminal behavior results from the discrepancy between what people are indoctrinated into desiring and the ability to achieve those desires |
| According to the differential reinforcement theory when his behavior reinforced | When positive rewards are gained (positive reinforcement), when punishment is avoided (negative reinforcement) |
| According to the differential reinforcement theory, when his behavior weekend | When punishment is presented (negative stimuli), when rewards are lost (negative punishment) |
| What is a white collar crime | Crime that involves the use of an individual's legitimate position of power, influence, or trust for the purpose of illegal gain |
| Most common organizational that environmental motivating factor for fraud in Albrecht study | Placing too much trust in key employees |
| Three approaches used to control corporate crime | Voluntary change in corporate attitudes and structure, strong intervention by the state to for changes in corporate structure, consumer action |
| Most common personal characteristic among fraudsters in Albrecht study | Living beyond one's means |
| How are most frosty checked it according to the ACFE report to the nations | By tip |
| What is organizational crime | Crime that is committed by businesses and the government |
| Four categories of occupational crime | Crimes for the benefit of employing organization, crimes by officials through exercise of their state- based authority, crimes by professionals in the capacity as professionals, crimes by individuals as individuals |
| What is occupational crime | Crime that is committed by individuals in the course of their occupation |
| Three legs of a fraud triangle | Perceived non-sharable financial need (motivation of pressure) perceived opportunity, rationalization |
| Who is responsible for the hypothesis of the fraud triangle | Donald R. Cressey |
| Factors used in determining fines imposed under the Corporate Sentencing Guidelines | The seriousness of the offense, the organization's level of culpability |
| 4 types of remedies under the Corporate Sentencing Guidelines | Guidelines fines, restitution, remedial orders, probation |
| 2 primary strategies to control corporate criminal behavior | Compliance, deterrence |
| What is compliance as it relates to combatting crime | Efforts to achieve conformity to the law without having to detect, process, or paralyzed by leaders, such as: providing economic incentives for voluntary compliance, using administrative efforts to control violations before they occur |
| What is deterrence as it relates to combatting crime | Efforts to achieve conformity to the law through the threat of criminal sanctions |
| 4 ways businesses rationalize illegal conduct according to Silk and Vogel | Compliance with government regulation is too costly, regulation is unnecessary, damage is diffused over a large number of individuals, violations are caused by economic necessity |
| 3 variables that drive occupational fraud according to the Fraud Scale | Situational pressures, perceived opportunities, personal integrities |
| What does it mean for an organization to be crimnogenic | Prone to committing crime |
| Most common category of occupational fraud according to the ACFE Report to the Nations | Asset misappropriations |
| Most costly category of occupational fraud according to the ACFE Report to the Nations | Financial statement fraud |
| What are the Corporate Sentencing Guidelines | Guidelines for Judges to consider when Sentencing organizational defendants that provide incentives and suggest reduced fines for organizations with effective compliance programs |
| Primary purpose of a company's board of directors | To serve as the middlemen between the corporation's shareholders and those actually carving out its activities (i.e. management and act as guardians of the organization's resources and assets |
| Primary responsibility of a corporation's management | To make the day-to-day decisions that affect company performance |
| What is corporate governance | the oversight responsibilities of different parties for an organization's direction, operations, and performance |
| Purpose of corporate governance | To encourage the efficient use of organizational resources and accountability for the stewardship of those resources |
| 4 general core principles or values of corporate governance | Accountability, Transparency, Fairness, Responsibility |
| Treadway Commission's 4 recommendations to reduce fraud in financial reports | Mandatory independent audit committee, written charter for audit committee, adequate resources and authority for the audit committee to carry out its responsibilities, informed, vigilant and effective audit committee members |
| Purpose of the Treadway Commission | To define the responsibility of the auditor in preventing and detecting fraud |
| Primary purpose of the Sarbanes-Oxley Act | To improve governance and oversight practices at companies to prevent shareholder losses due to fraud |
| Audit committee requirements under SOX | Hiring, overseeing, and paying the external auditions, resolving disputes between the external auditors and management, establishing procedures for handling tips and complaints about the company's accounting methods, internal controls, or auditing matters |
| required board committees for companies listed on the NYSE | A nominating/corporate governance committee, a compensation committee, an audit committee |
| 2 types of SOX protections for corporate whistleblowers | Civil liability for publicly traded companies who retaliate against employee whistleblowers, criminal sanctions for anyone who intentionally retaliates against another party for providing information to law enforcement regarding an alleged federal offense |
| Components of public companies' internal control reports under SOX (1 of 4 components) | Statement of management's responsibility for maintaining an adequate system of internal controls |
| Components of public companies' internal control reports under SOX (2-3 of 4 components) | Statement identifying the framework used to assess the effectiveness of the internal controls, mgmt.'s assessment of the effectiveness of the internal controls |
| Components of public companies' internal control reports under SOX (4 of 4 components) | Statement that the independent auditor has attested to management's assessment of internal controls |
| Under SOX, who must personally certify the integrity of the financial statements | The CEO and CFO |
| Items management must certify in annual and quarterly reports under SOX 1-3 of 5) | They have personally reviewed the rpt, based on their knowledge, no material misstatement in the rpt, based on knowledge, fin. stmts are presented fairly |
| Items management must certify in annual and quarterly reports under SOX (4-5 of 5) | They have disclosed any deficiencies, material witnesses, and fraud to the auditors, whether there have been any significant changes in internal controls since the last report |
| 3 factors to consider in designing compliance programs under Corporate Sentencing Guidelines | Industry size and practice, organization size, recurrence of similar conduct |
| What is the control environment of an organization | The foundation for the internal control system throughout the entire organization |
| COSO's 5 principles for an effective control environment | Personnel at all levels demonstrate integrity, the board is independent from mgmt., with board oversight, mgmt. establishes structures, reporting lines and responsibilities, org. is committed to attracting developing and retaining competent individuals |
| What is risk assessment component of COSO's internal control framework | The identification and assessment of the risks the entity faces in achieving its organizational objectives |
| COSO's 4 principles for the risk assessment component of internal control | organization sets sufficiently clear objectives, identifies risks to the achievement of its objectives, considers the potential for fraud in assessing risks, identifies and assesses changes that could significantly impact the system of internal control |
| What are control activities | The policies and procedures that enforce management's directives intended to mitigate risk |
| COSO's 3 principles for effective control activities | organization selects and develops control activities that mitigate risks to acceptable levels; selects and develops general control activities over technology, through policies that establish what is expected and procedures that put policies into action |
| elements to prove a defamation claim | an untrue statement of fact, communicated (published) to third parties, on an unprivileged occasion, caused damage to the subject's reputation |
| 2 torts of defamation | libel slander |
| why is libel | Defamation that appears in written form |
| what is slander | Defamatory remarks that are spoken |
| elements to prove a false imprisonment claim | Defendant used words or actions intended to restrain the plaintiff, defendant's words or actions resulted in restraint of the plaintiff without consent and w/o legal justification, plaintiff was aware that he was being restrained |
| what right does the Fourth Amendment guarantee all citizens | right to be free from unreasonable searches and seizures by the government |
| Purpose of Miranda warnings | Protect and individual's Fifth Amendment right against self-incrimination and Sixth Amendment right to an attorney |
| when are Miranda warnings required | when a person is being interrogated by public authorities in a custodial setting |
| what is a custodial setting (for Miranda purposes)? | questioning initiated by government agents after a person has been taken into custody, or otherwise deprived of his freedom or action in any significant way |
| what is a search warrant | a court order that grants authorities the right to search a person or place for evidence of a crime |
| what does the Federal Employee Polygraph Protection Act of 1988 prohibit? | use of polygraphs by most private employers unless: employer is engaged in an ongoing investigation involving economic loss or injury |
| what does the Fifth Amendment prohibit | the gov't from compelling a person to give information that could be used to convict him of a criminal offense, the government from punishing an employee for his silence or otherwise using his exercise of that right against him |
| 2 most common types of alternative dispute resolution | Mediation arbitration |
| what rights does the Sixth Amendment guarantee | Criminal defendants have right: to have legal counsel, to confront and cross-examine the witnesses against them |
| what does the National Labor Relations Act prohibit with regard to employee interviews? | any form of interrogation by employers that interferes with the rights of the employee to organize, bargain, or otherwise engage in concerted activities for purpose of bargaining or other mutual aid or protection |
| Elements for the qualified business privilege to apply in defamation actions | statement made in good faith, regarding a subject in which the person making the statement has a legitimate interest or duty, and made to those who have an interest in the matter |
| 2-part test to determine if workplace searches by government employees are reasonable | search must be justified at its inception, search must be reasonable in scope |
| what must be present for individuals to receive protection under the Fourth Amendment? | reasonable expectation of privacy |
| what is the exclusionary rule? | evidence seized in violation of defendant's Fourth Amendment right cannot be introduced for the purpose of providing direct proof of the defendant's guilt |
| What are one-party consent laws | laws that allow you to make an audio recording of a conversation to which you are a party without informing the other parties to the conversation that you are recording it. |
| What are two-party consent laws | Laws that prohibit making an audio recording of a conversation unless all parties to the conversation consent to the recording |
| What is trespassing | Unauthorized, intentional, or negligent entry upon the property of others |
| what is witness tampering | engaging in misleading conduct toward another person with the intent to influence, delay, or prevent a witness's testimony or to cause or induce any person to withhold testimony or documents |
| what is spoliation of evidence | Act of intentionally or negligently destroying evidence or making it otherwise unavailable |
| At what point is a person legally considered under arrest by a law enforcement officer | when a reasonable person would feel that he is not free to leave |
| what is an arrest | taking of a person into custody by a government officer for a potential violation of law |
| what are Miranda warnings? | list of warnings and rights that law enforcement officers must inform suspects of before a custodial interrogation begins |
| what is a grand jury proceeding? | |
| what traditional rights of the accused at trial are not present during a grand jury proceeding | to confront accusers, to mount a defense, to be informed of the jury's deliberations, to know the evidence against him, to be accompanied by counsel, to refuse to appear |
| what is an immunity order | an order protecting a witness from having his testimony used against him in a criminal proceeding |
| what is an indictment | written accusation of a serious offense brought in the name of the government and submitted to a grand jury |
| 2 kinds of criminal charging documents | indictment information |
| what is an information | a charging document signed by the prosecutor stating that the persons named or described committed an offense |
| what offenses must be charged by indictment | all capital offenses all felonies (unless waived by the defendant) |
| what party has discretion as to whether to prosecute a crime | the prosecution |
| what is a plea bargain | an agreement between the prosecution and the defendant where the defendant pleads guilty to the charges without going to trial (usually for a more lenient sentence) |
| what is a deferred prosecution agreement | an agreement where a prosecutor agrees not to file charges against an organization as long as the organization successfully complies with the agreement's terms |
| Government's border of proof in criminal trials | beyond a reasonable doubt |
| types of evidence held by the government that a criminal defendant may access during pre-trial discovery | copies of all relevant statements by defendant, accused prior criminal record, mental/ physical examinations, scientific tests, or other test results, material docs and tangible evidence, summaries of planned expert witness testimony |
| what evidence must prosecution disclose in criminal litigation | all evidence requested by defendant that is material to guilt or punishment |
| most common number of jurors in a criminal trial | 12 (although there are exceptions and parties can stipulate to a lower number) |
| what is voir dire? | Process where the parties or the court may ask questions of prospective jurors to determine their suitability or impartiality |
| what does a peremptory challenge (or strike) allow? | a litigant to remove someone from the jury panel without comment or justification |
| what is a legal defense? | and assertion by a defendant in a criminal or civil case that seeks to negate the defendant's guilt or civil liability for damages |
| what is probation | Suspension of an offender's sentence in return for a promise of good behavior |
| in most jurisdictions, what is parole | a reprieve from a sentence after the offender has served at least part of the original sentence |
| effect of a dependent's failure to object to an error at trial | the error is generally waived for appellate purposes, unless it was a very serious error that effected the substantial rights of the defendant |
| what is an arraignment | a criminal pre-trial proceeding consisting of the reading of the charges in the indictment or information where the defendant may plead guilty, not guilt, or nolo contendere |
| what is a motion for severance | Motion where a criminal defendant being tired with one or more other defendants requests that the court separate the trial to prevent undue bias or confusion on the jury's part |
| type of opinion testimony that a criminal defendant's character witness may offer at trial | testimony as to the defendant's general good reputation |
| Under what circumstances may a criminal defendant's prior convictions be introduced at trial | if the defendant testifies on his own behalf during the proceeding |
| what information are authorities required to convey in Miranda warnings? | Suspect's right to remain silent, warning that the suspect's statements may be used against him, suspect's right to an attorney, suspect's right to have an attorney if he cannot afford one |
| Order closing arguments are usually presented in a criminal trial | Prosecution's closing argument, Defendant's closing argument, Prosecution's rebuttal |
| Who has the discretion to immunize a witness | the prosecution |
| what is a complaint (in a civil action)? | Plaintiff's initial filing with the court that sets out the basis for the bringing of the suit |
| what should be included in plaintiff's complaint | statement showing court's jurisdiction, grounds for relief, demand for judgment |
| what is a service of process | Proceeding where a party is given official notice that a legal proceeding involving the party has commenced |
| What is required for service of process of a civil defendant | the complaint, together with a summons, served on the defendant informing him that a civil action has commenced and that he has a certain amount of time to answer or suffer a default judgment |
| what is discovery? | the formal process whereby the parties collect evidence and learn details of the opposing side's case |
| what information is discoverable during the civil discovery | any matter relevant to the proceeding that is not privileged |
| what is a deposition | sworn testimony given by a party or witness upon questioning by counsel for 1 of the parties before trial and outside of court |
| what are requests for admissions | civil discovery requests where a party asks another party to admit or deny various written statements |
| what civil discovery request would a party use to obtain documents from another party | request to produce documents |
| what are interrogatories | written questions that are submitted to any party in a suit, the answers to which are sworn under oath |
| what is a litigation hold | steps taken to notify employees to suspend the destruction of documents potentially relevant to anticipated litigation |
| when does the duty to issue a litigation hold arise | when litigation is reasonably anticipated |
| what is a counterclaim | a legal claim made by a defendant against the original plaintiff in the same proceeding |
| Through what document(s) are counterclaims filed | the defendant's answer or a separate counterclaim document |
| 2 most common types of alternative dispute resolution | Mediation arbitration |
| what is mediation | Process where an impartial third person assists the parties in reaching a resolution to the legal dispute |
| what is arbitration | Process where a dispute is submitted to an impartial third person (known as an arbitrator) who then decides the outcome of the case |
| number of jurors in civil jury trials | usually between 6 and 12, depending on the jurisdiction |
| How does Fifth Amendment privilege against self-recrimination apply in civil trials | a party still may refuse to answer questions or produce evidence, but inferences might be drawn and the refusal might be disclosed to the jury |
| most common burden of proof for parties in civil trials | Preponderance of the evidence |
| what is a cross-claim | an action between co-parties in a suit |
| what is a summary judgment | a court decision decided by the judge without a trial based on the evidence contained in the complaint and answer |
| when will a motion for summary judgment be granted | when the court determines that the pleadings and proof clearly demonstrate that there is no genuine material issue of fact and that the moving party is entitled to judgment as a matter of law |
| what is a subpoena duces tecum? | a legal order for the witness to produce documents for reference during the deposition of the witness |
| purpose of opening statements in civil trials | introduce the parties, state the nature of the dispute, outline the evidence the party expects to produce |
| Most common purpose of post-judgment discovery in civil fraud cases | to attempt to assess and locate the defendant's assets to satisfy a judgment |
| 3 basic forms of evidence | testimonial, real, demonstrative |
| what is testimonial evidence | oral statements made by witnesses under oath |
| what is real evidence | physical objects that played a part in the issues being litigated |
| what is demonstrative evidence | tangible items that illustrate some material proposition (e.g. a map or chart) |
| 2 basic types of admissible evidence | direct evidence circumstantial evidence |
| what is direct evidence | evidence that tends to prove or disprove a fact in issue directly |
| what is circumstantial evidence | evidence that tends to prove or disprove facts in issue indirectly, by inference |
| what is relevant evidence | evidence that tends to prove or disprove a fact in question |
| what does it mean to authenticate evidence | when the party offering an evidence item produces some evidence to show that the item is, in fact, what the party says it is and that it has remained in the same condition from the moment it was seized until it is used in court |
| what is the best-evidence rule | a rule to ensure that most accurate written version of evidence is admitted into trial; prohibits a party from testifying about contents of a doc without producing original doc or, |
| more best-evidence | if there is valid reason the original document is unavailable authenticated copy of original document |
| what is impeachment | Practice of brining out the matters that attack a witness's credibility |
| what is the attorney-client privilege | a rule of evidence that precludes disclosure of confidential communications between an attorney and a client |
| 3 elements for attorney-client privilege | the client retained the attorney to provide legal advice |
| what is the attorney's work product doctrine | a doctrine that protects materials prepared in anticipation of litigation from discovery |
| what is the Rule 404(b) of the Federal Rules of Evidence | a rule that states that evidence of other crimes, wrongs,or acts is not admissible to prove that the defendant is generally a bad person and therefore is likely to have committed the crime with which he is charged |
| what is a lay witness | a non-expert witness who must testify from personal knowledge about a matter at issue |
| 3 part test for lay witnesses to give opinion testimony | the witness has direct personal knowledge of the facts to which the opinion pertains, the opinion does not involve specialized knowledge or tests, |
| more lay witness | the opinion is not part of a legal judgment (i.e. it has some bearing on fact of the case, not judgment of the case. |
| what is evidence | anything perceivable by the 5 senses, and any proof legally presented at trial to prove a contention and induce a belief in the minds of a jury |
| what is an expert witness | person who, by reason of education, training, skill or experience, is qualified to render and opinion or otherwise testify in areas relevant to resolution of a legal dispute |
| what is character (propensity) evidence | testimony or exhibits that purport to establish and individual's "trait of character" or propensity to behave in a particular way |
| what are exhibits (in context of evidence)? | tangible objects presented as evidence |
| 3 elements of self-authenticating business records | prepared reasonably near the time of the event they describe, made by, or based on information transmitted from, a person of knowledge, prepared as a usual part of doing business |
| what is hearsay | a statement, other than one made at trial or hearing, offered in evidence to prove the truth of the matter asserted |
| what are evidentiary privileges? | legally recognized rights to withhold certain evidence from a legal proceeding |
| what is the self-evaluation privilege | an evidentiary privilege that protects work product of an org's investigation if the org can show that it is attempting to police itself in an area of public interest and that disclosures of work product would prejudice its efforts to police itself. |
| 2 marital privileges | confidential communications privilege adverse testimony privilege |
| what is inculpatory evidence | evidence that serves to incriminate the subject of the investigation |
| what is exculpatory evidence | evidence that serves to disprove the subject's involvement in the misconduct under investigation |
| what is testifying expert witness | a witness who gives opinion testimony when specialized knowledge is needed to help the jury or fact-finder understand evidence to determine a fact in a case |
| when does an expert witness witness have a conflict of interest | when the expert's ability to objectively evaluate and present an issue for a client is impaired by any current, prior, or future relationship with parties to the litigation |
| Rule 26 required elements of expert witness reports | complete statement of all opinions to be expressed and basis for such opinions, data or other information considered by expert in forming the opinion, any exhibits to be used as a summary of or in support for the opinions, |
| More Rule 26 required elements of expert witness reports | the expert's qualifications, a list of all publications authored by expert in last 10 years, list of other cases in which witness has testified as expert within last 4 years, expert's compensation for his review and testimony |
| 3 determinations a federal judge must make before allowing an expert witness to testify | Is the person qualified as an expert witness, will the expertise of the witness assist the jury in understanding the evidence or determining a fact at issue (is the testimony relevant to the facts of the case? Is the testimony reliable? |
| who decides whether and expert witness is qualified to testify | The trial judge |
| what evidence may an expert base an opinion on | firsthand observations, facts, data, or opinions presented at trial, facts, data, or opinions conveyed outside of court |
| when may an expert base his testimony on what would normally be inadmissible hearsay | when the information is the type reasonably relied upon by experts in the particular field |
| common ways that expert witnesses present findings during direct examinations | narratives, hypotheticals, specialized materials, special exhibits |
| what are narrative questions (in context of expert witness testimony)? | Broad, open-ended questions that allow experts to present their opinions in their own words with minimal prompting from the lawyer |
| opposing counsel's "golden rule" when deciding whether to cross-examine a witness | to cross-examine only if it will benefit the case |
| opposing counsel's goals in cross-examining an expert witness | Diminish importance of testimony, discredit expert, demonstrate inadequacies in expert's opinion, make expert contradict former statements, make expert's opinion appear to favor the opposing party |
| what is the myopic vision method in cross-examination | Getting the expert to admit excessive time being spent in the investigation of the matter, and then highlighting an area in which the expert is unsure or has not done much work |
| what is the "sounding board" method in cross-examination | Using questions that seek constant, non-stop agreement to make it appear that the expert is in general concurrence with opposing counsel |
| what is an expert witness draft report? | a preliminary report requested by attorneys from experts hired to testify to get the expert's initial thoughts and impressions about the case |
| Daubert criteria to assess the reliability of expert testimony | Whether expert's theory or technique can be or has been tested, whether T or T has been subjected to peer review and publication, whether expert's T or T enjoys general acceptance within the relevant scientific community, |
| more Daubert criteria to assess the reliability of expert testimony | whether there are standards governing the method used by the expert, whether expert's technique has a high error rate. |
| type of expert reports protected from disclosure by the work product doctrine under federal rules | draft reports |
| whose job is it to object if opposing counsel is conducting improper questioning of an expert witness | the party representative who retained the expert |
| what is a consulting expert witness | a witness who is hired to provide technical assistance to the attorney in preparing the case, but who does not typically testify at trial |
| what is cross-examination | questioning of one side's witness by the opposing side |
| what is purpose of cross-examination | to allow opposing counsel either to clarify or to make points at the witness' expense |
| what is the information and communication component of COSO's internal control framework | exchange of information in a way that allows employees to carry out their internal control responsibilities and achieve the organization's objectives |
| COSO's 3 principles for effective communication and information | the org. obtains or generates and uses relevant, quality info. to support functioning of internal control, Org internally communicates info. necessary to support functioning of internal control, |
| More principles | Org. communicates with external parties regarding matters affecting functioning of internal control. |
| What is the monitoring component of COSO's internal control framework | the process that assesses the effectiveness of a control system over time |
| COSO's 2 principles for effective monitoring | Org. selects, develops, and performs ongoing and/or separate evaluations of internal controls. Org. evaluates and communicates internal control deficiencies in timely manner to parties responsible for taking corrective action |
| 5 components of internal control according to COSO | control environment, risk assessment, control activities, information and communication, monitoring |
| What is COSO's definition of internal control | Process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding achievement of objectives relating to operations, reporting and compliance |
| 3 categories of internal control objectives | operations objectives (the effectiveness and efficiency of the organizations operations). Reporting objectives (reporting of financial and non-financial information to internal and external parties). |
| more categories | Compliance objectives (organization's adherence to the laws and regulations to which it is subject |
| Primary purpose of the Corporate Sentencing Guidelines | Provide incentives for organizations to maintain internal mechanisms for preventing, detecting, and reporting criminal conduct |
| who holds ultimate responsibility for fraud prevention and detection | Management |
| what is vicarious liability | potential liability of corporations and other organizations for criminal acts committed by employees |
| 7 factors for an effective corporate compliance program under Corporate Sentencing Guidelines | standards and procedures to prevent and detect criminal conduct. Responsibility and oversight for compliance program. Due diligence for hiring process. Communication of compliance policy through training programs and |
| more factors | other means. Steps to ensure program compliance, + having a publicized reporting system. Appropriate incentives for compliance + approp. disciplinary measures for violations. Reasonable response to an discovered criminal conduct |
| auditor requirements regarding illegal acts under the Private Securities Litigation Reform Act | determine + consider possible effect of illegal act on financial statements. Inform appropriate level of management "as soon as practicable". Ensure that audit committee is adequately informed of illegal acts, |
| more auditor requirements | unless such acts are clearly inconsequential. |
| 2 types of misstatements relevant for audit purposes under AU section 240 | Misstatements arising from: fraudulent financial reporting arising from assets misappropriation |
| Primary function of the Public Accounting Oversight Board | To oversee public company audits; to set audit standards; to investigate acts of noncompliance by auditors |
| what is professional skepticism | an attitude that includes a questioning mind and a critical assessment of evidence |
| topics external auditors should discuss during fraud brainstorming meetings | how financial statements might be susceptible to fraud; how management could perpetuate or conceal fraud; how assets could be misappropriated; known internal/external factors that might provide pressure, opportunity or rationalization for fraud |
| 4 factors to be considered when identifying fraud risks | type of risk that might exist; significance of the risk; likelihood of the risk; pervasiveness of the risk |
| audit aspects affected by auditors' judgments about the risk of material misstatement due to fraud | assignment of engagement personnel + supervision; consideration of management's selection and application of significant accounting principles; incorporation of an "element of unpredictability" into selected auditing procedures. |
| What is a top-down approach for performing an audit over internal controls? | An approach that begins at the financial statement level, and then focuses on entity-level controls and works down to significant accounts and disclosures. |
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