Assignment: Perform a Fraud Risk Assessment for Diamond Foods (View the case stu

Question

Assignment: Perform a Fraud Risk Assessment for Diamond Foods (View the case study using the link in your Syllabus.)

You are an auditor on the Diamond Foods audit team. Prepare a PowerPoint presentation to your team.

Include the following Checklist:

Present on the fraud risk assessment process as outlined in SAS No. 99, and apply this process to Diamond Foods.
In your presentation include an example of: 1) an incentive/pressure, 2) an opportunity, and 3) a rationalization for the fraud that subsequently occurred.

Explanation / Answer

Intentional false representation which includes hiding the truth or lying referred to fraud. When there are ineffective internal control systems, fraud arises.

It is the duty of the company and its auditor to safeguard the interest of the shareholders and there are certain regulatory bodies’ forces to conduct risk assessment process.

SAS (Statement on Auditing Standards) No. 99 states that taking into account of fraud in a financial statement audit. SAS No.99 dig deep to undergo academic research in order to detect and prevent fraud.

Fraud risk assessment process as outlined in SAS No. 99, and apply this process to Diamond Foods.

1.     Incentive / Pressure:

As per this theory, there are many factors or pressure which influences/forces a person to engage in illegal activities. There are two types of pressures which are personal or business. Reasons for personal pressures include habituated for lavish life though having only low income. Another reason for pressure is personal debt and increased bills payables. On the other hand, business related pressure is force from boss to engage in illegal or fraud activity. An employee should be forceful to commit a fraud activity by top management though he is not interested.     

Risk assessment:

One to one interaction with employees to motivate them for good results, employee reward system, motivational lectures and fun at work systems will prevents employees to engage in fraud activities.

2.     An opportunity:

Not only pressure or incentive sufficient to commit fraud but there should an opportunity must also exists to commit fraud. Reacting unethically to an existing situation leads to fraud.

Risk assessment:

The accounting industry searches for different ways to improve corporate governance and effective internal control system which de-motivates fraud activities. In order to have better internal control system best accounting software must be introduced which does not allow fraud or false input.

3.     A rationalization for the fraud that subsequently occurred:

Rationalization thinking of individual involves many thoughts like how their dependants would be if bonus not credited this time, loss of job if the organization went out of business. As this is the reason, rationalization could be very strong so that they think that what they are doing is right even after they have been caught.

Risk assessment:

It is not uncommon for organizations to detect fraud. However, it is even better to prevent it to avoid need of detection. Motivational lectures to employees, recreational tours and reward system could decrease the chance of an employee to be motivated for fraud activities.

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