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Timing is the Essence
Risk Factors of Poor Governance
Risk Factors of Poor Governance Part II
Global Whistleblowers
US Whistleblowers
100
When there is a suspected financial statement fraud occurring, what person or department would be helpful to ask questions about inventory and misstatement of assets?
****The shipping and receiving departments or loading docks ****. Shipping and receiving departments would tell auditors if any returns have occurred, how much inventory was sent out and used.
100
Compliance tests should be tested __________ and if regulatory action does occur, management needs to take action.
Routinely
100
When should the board ask questions about the business model generating assets and concomitant valuation protocols?
When goodwill is high compared to assets
100
The majority of employees are reluctant to be whistleblowers because they fear __________.
Retaliation.
100
Whistleblowers in which employment sector are protected by the United States Office of Special Counsel and the Whistleblower Protection Act of 1989?
Federal Employees
200
What is the most common method to illegally recognize revenue early?
****Keep the books open at the end of the accounting period **** By doing this it inflates both the assets and the revenue. In the article they talked about how some companies would stop the clock at the last day of the quarter that way they can record more sales. This is wrong since you are not recognizing income when it is truly earned.
200
When the CEO and CFO compensation is weighted on incentive compensation vs. base compensation, will this cause negative motivation or positive motivation?
This would cause negative compensation because this creates a motivation and rationalization for the CEO and CFO to commit asset misappropriation so they reach their goals.
200
Why would the CEO compensation being much greater than the CFO be a red flag?
It can increase governance risk, and causes a top directed culture where collaboration would be limited.
200
Which type of employee does Canada’s proposed whistleblower act only cover?
Public Employees
200
Who appoints the US Office of Special Counsel before they are later approved by the US Senate?
The President
300
What are some adequate internal controls that would stop premature revenue recognition?
Segregation of duties: order entry, shipping, billing, accounts receivable detail and general ledger.
300
When the CEO is also a board chairman, what type of conflicts might occur?
Governance is reduced and it also increases compromised oversight. This can cause CEO to have more power, excess CEO compensation, and could create a conflict of interest.
300
“Recognition polices should be reviewed when operating _________ is relatively high compared to operating expenses.
Revenue – (Operating Revenue)
300
“The Protected Disclosure Act, in South America, did not set up an independent agency of the State to assist or investigate complaints from _____________.”
Whistleblowers
300
The US Office of Special Counsel was established in 1979 during a time of increasing mistrust of the federal government following what scandal?
Watergate Scandal
400
What do you do in a cut-off test?
In a cut-off test you select invoices from a previous period and those from the beginning of next period. This helps make sure you are recording invoices in a proper place.
400
When a company undergoes reconstruction, this can employ to conceal a lack of what?
Sustainable earning growth
400
“What is it called when a company sells part of its business to focus more on its core operations?”
Divesture
400
“In the United Kingdom, the Public Interest Disclosure Act protects private and public employees (excluding police officers) from any “detriment” act done in retaliation of them making a protected disclosure through what kinds of channels?”
Prescribed channels
400
What does the Whistleblower Protection Act (WPA) of 1989 do?
The WPA makes it illegal for an employer to threaten or take a “personnel action” against a federal employee who has made a “protected disclosure.” Under the WPA, an employee is not required to make disclosures under any specific channel. They are protected regardless of whom they make their disclosure to (even the press), as long as the information is not protected from public disclosure by law (classified national security information is not allowed to be made public).
500
In the case study, how would have you detected the fraud earlier and what would you have done differently compared to these auditors?
To detect fraud earlier I would have investigated the financial state Don was in. When he bought Regina Vacuum Cleaner Co he inherited a huge debt of notes payable. This should have been a red flag to auditors to carefully investigate the sales of Regina Co.
500
Why do you think companies that have entered a merger within the past 12 months is a red flag for risky business?
This could possibly be a red flag because the policies of a company can be rushed and as a result auditors need to make sure the balance sheets are stated adequately.
500
“Why is having a high debt to equity ratio risky for a company?”
It could show that the company is not able to generate enough cash in order to pay off its debt obligations. Auditor have to look into whether the company will be able to continue to operate for at least the next year – “going concern"
500
Unlike the whistleblower acts in UK and South America, New Zealand’s Protected Disclosures Act 2000 does not offer protection to employees that make disclosures outside of what type of channels?
Their employer’s internal channels
500
What is the primary purpose of the United States Office of Special Counsel (OSC) and what powers does it hold?
The OSC’s primary purpose it to protect whistleblowers in the federal employment sector. It operates a secure channel for employees to make disclosures of official wrongdoings, with assurance that their identities will be kept confidential. The OSC also enforces the Whistleblower Protection Act. The OSC has the power to force witnesses to testify and to retrieve documents. It can also seek a stay of any personnel actions that is believed to be a part of employee retaliation. The OSC usually pursues and obtains voluntary correction of an illegal personnel action by the agency involved. If that doesn’t work, the OSC will prosecute the retaliation case. The OSC has the power to seek disciplinary action against an agency official that has engaged in employee retaliation. The OSC will file a petition with Merit Systems Protection Board asking for them to discipline that official with sanctions as severe as removal from federal employment.