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Discussant's Response to A Look at the Record on Auditor Detection of Management Fraud Robert L. Grinaker University of Houston I am pleased to review Donald Ziegler's paper on "A Look at the Record on Auditor Detection of Management Fraud.'' As chairman of The Standing Subcommittee on Methods of Perpetration and Detection of Fraud, Ziegler speaks from a position of considerable knowledge, and his paper reflects the significant work of that subcommittee. Because I challenge only a point or two in the paper, I have chosen to emphasize and expand several of the points raised. Hence, I would like my remarks to be viewed as complementary to those of Mr. Ziegler. The matters I have selected for emphasis are the following: 1. My understanding of the meaning of ''management fraud.'' 2. The materiality threshhold for fraud. 3. The relationship of internal control to management fraud. 4. Ziegler's four-point program for fraud detection. 5. Management fraud and implications for research. The Meaning of Management Fraud Because "management fraud" contains the adjective "management," the term is meant to be distinguished from fraud in general. While all fraud involves deceit, trickery, or cheating, management fraud connotes special characteristics. In my judgment, management fraud contains three special characteristics as follows: 1. The fraud is perpetrated at levels of management above those to which internal control systems generally relate. 2. The fraud frequently involves using the financial statements to create an illusion that an entity is more healthy and prosperous than it actually is. 3. If the fraud involves the misappropriation of assets, it frequently is shrouded in a maze of complex transactions often involving related third parties. ASB (Auditing Standards Board), in its discussion of limitations on the effectiveness of internal control, makes the point that controls can be overriden by certain levels of management. In SAS Section 320.34, ASB states as follows: procedures designed to assure the execution and recording of transactions may be ineffective against either errors or irregularities perpetrated by management with respect to transactions or to the estimates and judgments required in the preparation of financial statements." ASB reaffirms the point in SAS Section 327.09 in 93
Discussant's response to a look at the record on auditor detection of management fraud
Grinaker, Robert L.
Nichols, Donald R., ed.
Stettler, Howard, ed.
Auditing Symposium V: Proceedings of the 1980 Touche Ross/University of Kansas Symposium on Auditing Problems, pp. 093-099
|Source||Published by: University of Kansas, School of Business|
|Rights||Contents have not been copyrighted|
|Format||PDF page image with corrected OCR scanned at 400 dpi|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Library. Accounting Collection|