Examples of Circumstances that May Be InExamples of Circumstances that May Be Indicative of Fraud or Suspected Fraud

Examples of Circumstances that May Be Indicative of Fraud or Suspected Fraud

The following are examples of circumstances that may indicate that the financial report may contain a material misstatement due to fraud.

Discrepancies in the accounting records, including:

 Transactions that are not recorded in a complete or timely manner or are improperly recorded as to amount, accounting period, classification, or entity policy.

 Unsupported or unauthorised balances or transactions.

 Last-minute adjustments that significantly affect financial results (e.g., inventory adjustments).

Conflicting or missing evidence, including:

 Missing documents.

 Missing approvals or authorisation signatures.

 Signature or handwriting discrepancies and invalid electronic signatures.

 Documents that appear to have been altered.

 Unavailability of other than photocopied or electronically transmitted documents when documents in original form are expected to exist.

 Significant unexplained items on reconciliations.

 Unusual balance sheet changes, or changes in trends or important financial report ratios or relationships – for example, receivables growing faster than revenues.

 Inconsistent, vague, or implausible responses from management or employees arising from enquiries or analytical procedures.

 Unusual discrepancies between the entity’s records and confirmation replies.

 Large numbers of credit entries and other adjustments made to accounts receivable records.

 Subsidiary ledgers, which do not reconcile with control accounts.

 Unexplained or inadequately explained differences between the accounts receivable sub-ledger and the control account, or between the customer statements and the accounts receivable sub-ledger.

 Unexplained fluctuations in stock account balances, inventory variances and turnover rates.

 Missing inventory or physical assets of significant magnitude.

 Unavailable or missing electronic evidence, inconsistent with the entity’s record retention practices or policies.

 Fewer responses to confirmations than anticipated or a greater number of responses than anticipated.

 Inability to produce evidence of key systems development and program change testing and implementation activities for current-year system changes and deployments.

 Information about overly optimistic projections obtained from listening to the entity’s earning’s calls with analysts or by reading analysts’ research reports that is contrary to information presented in the entity’s internal forecasts used for budgeting purposes.