FRAUD THEORY

FRAUD THEORY

1.      Fraud Triangle by Cressey (1953)

a.       Pressure is a reason why someone do a fraud, usually causing by the problem of financial, medical bills, expensive tastes, addiction problems, etc.Often this need/promblem is non-discloseable in the eyes of fraudster. That is, the person believes, for whatever reason, that their problem must be solved in secret.

b.      Opportunity is a chance that allows fraud can occur, usually causing by weak internal control of a company, poor management oversight, and through abuse the power.

c.       Rationalization is a situation where the offender develop the justify their fraud action.

2.      Fraud Scale

The fraud scale helps determine the likelihood of fraud by rating each of the three elements of fraud on a scale of low to high. When situational pressures and opportunity are high and personal integrity is low, then the fraud is much more likely to occur that when integrity is high and opportunity and pressures is low.

a.       Situational pressures

·         Immediate problems with environment

·         Usually debts/losses

b.      Perceived opportunities

·         Poor controls

c.       Personal integrity

·         Individual code of behavior

3.      The Fraud Diamond

 

The fraud diamond was introduced by David T. Wolfe and Dana R Hermanson in 2004.  This theory adding one element, that is capability. Capability is individual character to plays the fraud with several factors:

a.       Position and authority in the organization

b.      High level understanding of system

c.       Egoistic nature

d.      Persuasive and deceptive nature

e.       Resillence to stress

4.      M.I.C.E Theory (Money, Ideology, Coercion, Ego)

Introduced by Professor Jason Thomas of West Virginia University (2010). The M.I.C.E represent four main motivating factors of fraud. The concept claims that financial gain does not explain the motivation for all fraudsters.

a.    Money as a motivating factor  would include all real or perceived financial pressures.

b.    Ideology, the perpetrator often believes that his or her actions benefit the greater good, or that following a  particular rule is against his or her beliefs.

c.    Coercion  is when someone is pressured into  committing a crime that they do not want to commit.

d.    Ego is closely related to  the concept of financial pressure and involves the feeling of entitlement or pride.

5.      GONE Theory (Greeds, Opportunities, Need, and Exposure)

Greeds dan Need relates to the fraudster indicidual.  Opportunities dan Exposure relates to the victims of fraudster. The fraudster is individu or a group from internal organization or externally that aggrieving the victim. The victim is an organization, instance or public who aggrieved.

6.      Pentagon Fraud Theory (Crowe’s fraud pentagon theory)

Introduced by Crowe Howarth in 2011. Pentagon fraud theory is an expansion of triangle fraud theory. In this theory, Crowe adding 2 fraud elements, that are:

a.       Competence, is a capability of employee to ignore internal control, develop concealment strategy and control the social situaituon for self-interest.

b.      Arrogance is superiority character on someone rights and feels that internal control or organization policy is not valid for them.

References

·         The psychology of fraud journal by Dr. John Nugent, LLM, CPA, CFE, CISM, FCPA

·         http://idejtito.blogspot.co.id/2008/04/definisi-dan-teori-korupsi.html

·         http://gondata.feb.unila.ac.id/galerry/wp-content/uploads/2016/08/AKPM-185-Camera-ready-Fullpaper-Edit-Full-Paper_Chyntia-Tessa-G-edited.pdf

COMMON SIZE ANALYSIS

Common-size income statements facilitate easy comparison. Not only can readers easily see how much of every dollar goes to rent, for example, they can compare that percentage to other companies or other periods in time. This allows analysts to compare companies of different sizes and not be "blinded" by the size differences inherent in the raw data.

sources: http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/common-size-income-statement-5237

8 COSO Components

Nindita Rahmalaudina - C1L014037

1. Internal Environment

The internal environment sets the foundation for how risk is viewed and addressed by an entity’s people.

2. Objective-Setting

ERM ensures that management has in place a process to set objectives and that the chosen objectives support and align with the entity’s mission and are consistent with its risk appetite.

3. Event Identification

Internal and external events affecting the achievement of an entity’s objectives must be identified, distinguishing between risks and opportunities.

4. Risk Assessment

Risks are analyzed, considering likelihood and impact, as a basis for determining how they should be managed.

5. Risk Response

Management selects risk responses—avoiding, accepting, reducing or sharing risk—developing a set of actions to align risks with the entity’s risk tolerances and risk appetite.

6. Control Activities

Policies and procedures are established and implemented to help ensure the risk responses are effectively carried out.

7. Information and Communication

Relevant information is identified, captured and communicated in a form and timeframe that enable people to carry out their responsibilities.

8. Monitoring

Monitoring is accomplished through ongoing management activities, separate evaluations or both.

Sources: http://info.knowledgeleader.com/bid/163293/what-is-the-coso-enterprise-risk-management-framework

Analyzing Internal Control of Annual Report

Nindita Rahmalaudina - C1L014037

Group Member:

Wasis Yuda Yanti - C1L014013

Rizkia Vionanda - C1L014034

INDEPENDENT AUDITOR’S REPORT ON CONSOLIDATED FINANCIAL STATEMENT OF SAMSUNG ELECTRONICS CO., LTD.

Consolidated financial statement of Samsung Electronics Co., LTD. and its subsidiaries have been audited by independent auditor which comprise the consolidated statement of financial position as at December 31, 2016 and 2015, and the consolidated statement of profit or loss, consolidated statement of cash flows for years then ended, and the notes to the consolidated financial statement.

Base on independent auditor's report, we think that the management uses its internal control well because the preparation and fair presentation of the consolidated financial statement in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). Good internal control avoids material misstatement of the financial statements.

Implementation of internal control in a company is doing well because in those reports the auditors evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates made significant management and overall presentation of the consolidated financial statement and the audit evidence obtained is sufficient and appropriate. So there is no limitation from the management.

Auditing II - Internal Control

Nindita Rahmalaudina - C1L014037
1.What is internal control ?
2. Why in auditing we have to understand and examine the internal control of the entity?

          Internal control is a way that used by a management to make sure that the plan of an entity can goes well. It's necessary for an entity to have an internal control to manage their business circulation. Without internal control, the work of every division in a company can be complicated.

          When an auditor make an audit for a company, internal control can help when the auditor collect the data. Good internal control serve information neatly for sure. Internal control make their job easier than do audit in a company who's not implementing internal control. The auditor can evaluate the internal control of a company in audit process. Internal control also used for matched the company's performance with the audit result. Is the bad audit result caused by bad internal control of an organization or any factors?

          The auditor can give a suggestion for company's improvement even it's not write in auditor's opinion page.