Question

1. Give examples misstatements arising from misappropriation of assets..? 2. What is fraud triangle...? 3. What are principles of effective corporate governance..? 4. What are responsibilities of committee audit...?

Answer 1

1. Examples of misstatements arising from misappropriation of assets:

• Asset related to business used for personal purpose;
• Assets recorded in books without having actual existence or ownership of asset;
• Damaged or obsolete assets presented in books of accounts at its historical cost;
• Depreciation on asset is not properly charged;
• Overstatement of asset;

2. Fraud Triangle: Fraud triangle is a framework which explain the motivation behind the fraud. There are mainly three components of fraud triangle (i) Opportunity (ii) Pressure (iii) Rationalization. The fraud triangle was created by Criminologist Donald Cressey in 1950's. This theory was based on several interviews with prison inmates.

(i) Opportunity: When a person have ability to commit a fraud and there is lack of business control gives fraudsters opportunity to commit fraud.

(ii) Pressure: When a person is having pressure of maintaining lavish lifestyle or suffering from any financial distress, then such person may comit fraud.

(iii) Rationalization: It is the mindset of a person who thinks it is ok to commit a fraud.

3. Principles of effective corporate governance: Corporate means large entity or company and governance means control. Hence Corporate governance is the system through which entity controls the activities of the organization in the best interest of the stakeholders. For effective corporate governance there should be proper composition of directors as per governing authorities, there should be proper code of conduct and vigil mechanism, proper management of subsidiaries,adequate frequency of meeting, sufficient roles and powers of audit committees, proper information to shareholders, contents of management discussion and analysis etc.

4. Responsibilities of audit committee:

• Give recommendations to appointment of auditor;
• Check independence of the auditor;
• Give recommendations of auditor's remuneration;
• Monitoring choice of accounting policies and principles
• Oversight of regulatory compliance, ethics and whistleblower policy etc.