Ch 5 Misappropriation of Assets Quiz

Questions and Answers

Define misappropriation of assets. What are other terms for this concept?

Fraud; obtaining something of value or avoiding an obligation by deception.

How may misappropriations be accomplished?

Often misappropriations are accomplished by false or misleading records or documents, possibly created by circumventing internal controls.

If Multiplier, Inc. has a 25 percent gross profit margin during a year when there is a skimming scheme which reduces the bottom-line by $1,200,000, what increase in revenue is needed to replace this bottom-line loss?

$4,800,000.00

What ways may assets be misappropriated according to SAS No. 99?

<ol> <li>Transactions not recorded properly. 2. Unsupported or unauthorized balances. 3. Last-minute adjustments affecting financial results. 4. Evidence of unauthorized access.</li> </ol> Signup and view all the answers

Define these terms: Skimming, Kitting, Lapping, Kickbacks.

<p>Skimming = An 'off-book' technique to remove cash before company records are made. Kitting = Building up balances in bank accounts by floating checks drawn against similar accounts. Lapping = Recording payment on a customer's account after the payment is received. Kickbacks = Involving a vendor/supplier colluding with an employee to under-report inventory or misprice items.</p> Signup and view all the answers

What are the three conditions for misappropriation of assets in SAS No. 99?

<ol> <li>Incentives/pressures. 2. Opportunity. 3. Attitudes/rationalizations.</li> </ol> Signup and view all the answers

Review the generalizations that Gwynn Nettler provides about fraud perpetrators.

<p>Fraud perpetrators include people who have experienced failure, are disliked, impulsive, without conscience, or under pressure to achieve objectives.</p> Signup and view all the answers

Study Notes

Misappropriation of Assets Overview

Misappropriation of assets involves obtaining something valuable or avoiding an obligation through deception, also known as fraud.
It often results from creation of false or misleading records that bypass internal controls.

Financial Impact of Misappropriation

For a company with a 25% gross profit margin, a bottom-line loss of $1,200,000 due to a skimming scheme requires an increase in revenue of $4,800,000 to offset the loss.

Methods of Misappropriation (SAS No. 99)

Misappropriated assets can manifest through:
- Incomplete or untimely recording of transactions, or inaccuracies in amount or classification.
- Unsupported or unauthorized balances and transactions.
- Significant last-minute adjustments that affect financial outcomes.
- Inconsistent employee access to systems and records beyond their authorized duties.

Types of Misappropriation Techniques

Skimming: Involves removing cash "off-book" before it is recorded.
Kitting: Balancing bank accounts by floating checks between accounts in different banks.
Lapping: Delaying the recording of a payment to cover cash taken from another customer’s account.
Kickbacks: Collusion between employees and vendors to underreport inventory or inflate prices.

Conditions for Misappropriation (SAS No. 99)

Three critical conditions facilitate misappropriation:
- Incentives or pressures on individuals.
- Opportunities arising from weaknesses in internal controls.
- Attitudes or rationalizations that justify dishonest behavior.

Characteristics of Fraud Perpetrators (Gwynn Nettler)

Individuals who experience failure may resort to cheating.
Those with low self-esteem or who feel disliked are more likely to engage in deceit.
Impulsive and distractible individuals struggle to delay gratification and may commit fraud.
People with a strong conscience resist deception more effectively.
Higher intelligence correlates with greater honesty.
Socioeconomic status influences honesty, with middle and upper classes generally being more honest.
The opportunity to cheat increases likelihood of fraud.
Personal needs can set varying thresholds for dishonesty.
Greater pressure to achieve significant goals can lead to increased instances of lying, cheating, and stealing.
Survival instincts can drive deceitful actions.

Description

Test your knowledge on Chapter 5 about misappropriation of assets. This quiz covers key definitions, methods of misappropriation, and relevant terminology related to asset fraud. Enhance your understanding of asset misappropriation concepts and their implications.