88 Ways to Quickly Identify Accounting Fraud

Author: Wang Yazhuo
Publisher:
Publish Date: 2006-08-01
Features: As the ancients said, "Know yourself and know your enemy, and you will win a hundred battles." A thorough understanding of the inspected unit is the beginning of identifying problems. The inspection of the unit should primarily focus on the following aspects:
1. Understanding the management system of the inspected unit
Auditors, in addition to familiarizing themselves with relevant laws, regulations, and systems before conducting an inspection, should also understand and be familiar with the management systems of the inspected unit. The management system of the inspected unit is the set of behavioral norms, standards, and management methods proposed to employees, based on national policies, principles, laws, and regulations, as well as specific requirements from higher leadership, combined with the production and operational characteristics and management needs of the unit. The economic activities of each unit are carried out under its own management system, and the accounting of each unit is also conducted according to its own management requirements. Therefore, identifying incorrect accounts inevitably involves the management system of the inspected unit. As a result, understanding the management system of the inspected unit becomes a fundamental task in identifying accounting fraud before the formal inspection begins. Understanding the management system of the inspected unit serves two purposes: first, to grasp the scope of the inspection and check whether the accounting of the inspected unit complies with national policies, principles, and specific management requirements; second, to verify whether the systems formulated by the inspected unit align with national policies and principles and whether they conflict with national laws and regulations. Additionally, it can be checked whether the management system of the inspected unit is sound, scientific, and meets management requirements, as well as whether there are any loopholes or defects. The inspection of the management system of the inspected unit is also an indispensable part of identifying accounting fraud.
2. Understanding the processing procedures of the inspected unit's economic activities
The processing procedures of economic activities refer to the specific steps and procedures involved in handling a particular economic activity, including which personnel are responsible for each step and what responsibilities they hold. For example, taking the cash receipt business of an industrial enterprise as an example, the procedures to be understood are roughly as follows: who receives the cash from the person carrying the money in the finance department, what documents and procedures are required when making the payment; after the cashier receives the cash, how the internal division of labor is handled within the department, who prepares which documents, and which ledgers are recorded; how the cashier makes the payment to the bank, what procedures are handled when making the payment, and what documents are filled out; what documents are used as the basis for the payment, and which ledgers are recorded; and who is responsible for each step in the finance department, how the steps are handed over, and how documents are circulated, etc. Clearly, the above cash receipt processing procedures must be fully understood to identify errors in cash receipt business. P8-9