Transcript

Slide 1

There are three general types of problems:
Errors
Disagreements in judgment
And fraud

Slide 2

Lets first look at the types of errors that occur that threaten the integrity of financial information.
1. Source documents are lost. What are source documents they are the original documentation associated with a transaction. Examples of source documents are receipts, purchase orders and invoices. These documents need to clearly provide information describing the purpose of the transaction, the total amount and any other pertinent information. For instance, you need to purchase office supplies from Office Depot. You take the corporate credit card to purchase the needed supplies. At the register you receive two small pieces of paper with your purchase. One provides documentation representing the credit card transaction and the other provides a list of the items purchased. The list of the items purchased with the total is important source documentation. Let’s say someone needs to compile information on what office supplies are used and by how much. These source documents would be a resource for this analysis. Or perhaps an auditor is reviewing credit card purchases for irregularities. The list of items purchased would be a critical component of that review.
2. Amounts entered into the records are incorrect. This error can happen to anyone. It is easy for someone to enter an incorrect number or transpose a number after working several hours at a computer.
3. Accounts involved were incorrect. This is a much larger problem than people understand. Poorly posted financial information weakens the usefulness of the financial reports. If transactions are incorrectly categorized then we don’t get a clear picture of the total expenses incurred or revenues generated. It is hard to make good business decisions with incomplete or inaccurate information.

Slide 3

The next type of error is “disagreements in judgment”. Many people think that accounting is a precise and exact discipline. There could be nothing farther from the truth. Accounting is not black and white. Individual accountants make judgments calls and estimates on business transactions every day.

Slide 4

The final error type is “fraud”. Fraud is where someone intentionally deceives another to gain unauthorized access and use of resources. The key words here are “intentional deception”. Stealing is intentional but there isn’t the “deception” aspect. When someone is waving a gun in your face and demanding your money, deception isn’t part of the picture. Everyone present is fully aware of what is going on at that moment. Where as someone trying to hide their theft with false source documents and/or fictitious journal entries constitutes deception.

Slide 5

It is important to understand that the prevalent types of financial integrity problems are your common errors such as transposing numbers and disagreements in judgments. Most businesses do not engage in fraudulent activity. This is due to the fact that the vast majorities of business managers are honest and possess integrity and safeguards have been built into the accounting system. In the next module we will learn more about these safeguards or internal controls.