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Misappropriation of Assets

The document discusses misappropriation of assets, which involves theft of an entity's assets, often by employees in small amounts or management who can better disguise the theft. Misappropriation can be accomplished through embezzlement, theft of physical assets, intellectual property theft, or paying for goods/services not received. It is the responsibility of those charged with governance and management to prevent and detect fraud through strong internal controls and oversight. However, audits have inherent limitations and some material misstatements may still be missed, especially those involving sophisticated schemes or management fraud.

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Elliot Richard
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202 views2 pages

Misappropriation of Assets

The document discusses misappropriation of assets, which involves theft of an entity's assets, often by employees in small amounts or management who can better disguise the theft. Misappropriation can be accomplished through embezzlement, theft of physical assets, intellectual property theft, or paying for goods/services not received. It is the responsibility of those charged with governance and management to prevent and detect fraud through strong internal controls and oversight. However, audits have inherent limitations and some material misstatements may still be missed, especially those involving sophisticated schemes or management fraud.

Uploaded by

Elliot Richard
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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MISAPPROPRIATION OF ASSETS

● Involves the theft of an entity’s assets and is often perpetrated by employees in

relatively small and immaterial amounts

● Can also involve management who are usually more able to disguise or conceal

misappropriations in ways that are difficult to detect

● Often accompanied by false or misleading records or documents in order to conceal the

fact that the aspects are missing or have been pledged without proper authorization

● Can be accompanied in a variety of ways including:

o Embezzling receipts

o Stealing physical assets or intellectual property

o Causing an entity to pay for the goods and services not received

o Using an entity’s assets for personal use

Responsibilities of Those charged with Governance and of Management

1. The primary responsibility for the prevention and detection of fraud rests with both those

charged with governance of the entity and with management

2. It is important management, with the oversight of those charged with governance, place a

strong emphasis on fraud prevention, which may reduce opportunities for fraud to take place,

and fraud deterrence, which could persuade in individuals not to commit fraud because of the

likelihood detection and punishment

3. It is the responsibility of those charged with governance of the entity to ensure , through

oversight of management, that the entity establishes and maintains internal control to provide

reasonable assurance with regard to reliability of financial reporting, effectiveness and efficiency

of operations and compliance with applicable law and regulations

234. It is the responsibility of management, with oversight from those charged with governance, to

establish a control environment and maintain policies and procedures to assist in achieving the

objective ensuring, as far as possible, the orderly and efficient conduct of the entity’s business

Inherent limitations of an Audit in the context of Fraud

1. Owing to inherent limitations of an audit, there is an unavoidable risk that some material

misstatements of the financial statements will not be detected, even though the audit is
properly planned and performed in accordance with PSAs

2. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of

not detecting a material misstatement resulting from error because fraud may involve

sophisticated and carefully organized schemes designed to conceal it, such as:

● Forgery

● Deliberate failure to record transactions

● Intentional misrepresentation being made to the auditor

3. The risk of the auditor not detecting a material misstatement resulting from management fraud

is greater than for employee fraud, because management is frequently in a position to directly or

indirectly manipulate accounting records and present fraudulent financial information

4. The subsequent discovery of a material misstatement of the financial s

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