BUS FPX 4068 Assessment 3 Forensic and Non-forensic Audits

Student Name

Capella University

BUS-FPX4068 Contemporary Auditing Using Investigative Accounting Practices

Prof. Name:

Date

Case 1: Possible Check Fraud Schemes and Control Processes

The company is at risk of falling victim to various check fraud schemes, including check tampering, check washing, and check laundering. Check tampering occurs when an employee uses legitimate checks for personal benefit, often employing false identities. Check washing involves altering checks chemically to modify payee names or amounts. Similarly, check laundering utilizes checks for unauthorized purposes, exploiting insufficient scrutiny over their authenticity or accuracy (Hopwood, Leiner, & Young, 2012). To mitigate these risks, implementing robust control measures such as automated check verification systems at the point of sale or requiring salespersons to initial received checks can significantly reduce fraudulent activities.

Employees in a Position for Check Fraud
Several employees may be in a position to commit check fraud, including salespersons, department managers, general managers, and controllers. These employees often have access to checks, making it easier for fraudulent activities to occur if effective accountability systems are absent. Without a verification process at the point of sale, identifying the source of fraudulent transactions becomes highly challenging.

Case 2: Acceptability of Heather’s Options under GAAP

The options Heather is considering are not acceptable under generally accepted accounting principles (GAAP). Manipulating the estimated percentage of completion to hide contract losses is inconsistent with GAAP, which requires recognizing losses in the financial records. Similarly, premature revenue recognition and the application of mark-to-market methods are misleading practices that distort the company’s true financial position and fail to provide stakeholders with reliable financial data (Hopwood, Leiner, & Young, 2012).

Financial Statement Fraud

The premature recognition of revenue and misstating the percentage of completion represent financial statement fraud. These actions mislead stakeholders and compromise the integrity of the financial statements, ultimately damaging trust in the organization’s reporting practices (Hopwood, Leiner, & Young, 2012).

Handling the Situation

In Heather’s position, maintaining honesty and integrity should be prioritized. It is crucial to disclose the losses associated with previous owners transparently and involve stakeholders in finding resolutions. Exploring viable options such as incorporating the defaulted recreational vehicles into inventory or relocating operations to Mexico could help mitigate losses. Decisions should emphasize long-term sustainability while protecting stakeholder trust and maintaining ethical standards.

Case 3: Feasibility of SOX 404 Compliance for a Three-Person Company

Compliance with the Sarbanes-Oxley Act (SOX) Section 404 is a challenging yet achievable goal for a small company with only three employees. Small firms, categorized as micro-cap companies, are subject to scaled-down requirements compared to larger firms, which provide some flexibility in compliance efforts (Hopwood, Leiner, & Young, 2012).

General Steps for Compliance

To achieve compliance, the siblings must ensure strong leadership and establish a board of directors to oversee critical operations. Given the limited resources and segregation of duties typical of small firms, each team member must excel in multiple roles to ensure comprehensive oversight of financial reporting and operational processes. Leveraging existing technological resources effectively is essential to meet compliance standards (Hopwood, Leiner, & Young, 2012).

References

Hopwood, W. S., Leiner, J. J., & Young, G. R. (2012). Forensic accounting and fraud examination (2nd ed.). McGraw-Hill.

Paull, L. (2018). Provisions for estimated contract losses. LaPorte CPAs & Business Advisors. Retrieved June 12, 2022, from https://laporte.com/knowledgecenter/audit-andassurance-services/provisions-for-estimated-contract-losses.