Accounting Information Systems: The Processes and Controls, 2nd Edition

SUMMARY OF STUDY OBJECTIVES

An introduction to the need for a code of ethics and internal controls. Managers of organizations are entrusted with the assets and funds of their organizations; therefore, they have an ethical duty to appropriately protect and use those assets and funds. As stewards of assets and funds, managers must ensure that policies and procedures are in place to provide protection and to accurately record and report the flow and use of assets and funds. Codes of ethics and strong systems of internal control are important parts of these policies and procedures. Properly enforced codes of ethics and internal controls can establish an operating environment that discourages fraud and errors.

The accounting-related fraud that can occur when ethics codes and internal controls are weak or not correctly applied. In organizations where codes of ethics are not enforced or when proper controls are not correctly applied, fraud and errors are much more likely to occur. There are many kinds of fraud that can occur, including management fraud, employee fraud, customer fraud, and vendor fraud.

The nature of management fraud. Management fraud is conducted by upper-level managers and usually involves fraudulent financial statements. Managers are above the level of most internal controls; therefore, internal controls are usually not effective in preventing or detecting management fraud.

The nature of employee fraud. Employee fraud is conducted by non-management employees and usually ...