When conducting a quality audit, auditors are

particularly concerned about the occurrence of

fraud. There are various types of fraud, and many
motivations, opportunities, and rationalizations
explaining why people perpetrate fraud. In this chapter,
we provide examples of both historical and more recent
fraud schemes, and we discuss implications for auditors
of recent regulations designed to prevent and detect
fraud. We also describe corporate governance, a process
by which the owners and creditors of an organization
exert control through requiring accountability for
the resources entrusted to the organization, and we
explain how effective corporate governance can reduce
fraud risk.
Through studying this chapter, you will be able to achieve these learning objectives:
1. Define the various types of fraud that affect
organizations.

2. Define the fraud triangle and describe the three

elements of the fraud triangle.
3. Describe implications for auditors of recent
fraudulent financial reporting cases and the third
COSO report on fraud.
4. Discuss auditors fraud-related responsibilities and
users related expectations.
5. Explain how various requirements in the
SarbanesOxley Act of 2002 are designed to help
prevent the types frauds perpetrated in the late
1990s and early 2000s.
6. Define corporate governance, identify the
parties involved, and describe their respective
activitiesSource: Karla M. Johnstone
University of WisconsinMadison
Audrey A. Gramling
Bellarmine University

Larry E. Rittenberg