Examples of conditions and situations indicating heightened fraud risk in
certain companies in emerging markets that have been observed by PCAOB
staff or reported in an SEC filing include:
• Existence of two separate and different sets of financial books and
records;
• Discrepancies between the company's financial books and records
and audit evidence obtained with respect to the existence and
accuracy of cash balances, accounts receivable, and revenues;
• Auditor difficulties in confirming cash balances, including when
requesting to visit the offices of the company's bank, or questions
about the authenticity of bank statements provided to the auditor;
• Auditors' follow-up visits to bank offices indicating serious
discrepancies between bank confirmations provided to the auditor
and the bank's actual records, such as previously undisclosed
material borrowings and no record of or significant differences
regarding certain transactions;
• Attempts by management to intercept or alter confirmation requests
or responses;
• Irregularities in sales contracts, such as a company-specific seal
affixed on the sales contract that does not belong to the purported
customer named in the contract;
• Recognizing revenue from contracts or customers whose existence
could not be corroborated;
• Recording sales of products shipped to warehouses or freight
forwarders where no customer is identified;
• Undisclosed material facts surrounding acquisition transactions,
sales transactions, and off-balance-sheet transactions with related
parties;
• Recording of assets for which evidence of control, ownership, or
title is either unclear or difficult to corroborate;
• Potential double counting of fixed assets;
• Recording of uncorroborated operating expenses for which the
business purpose is unclear;
• Manipulation of the accounting records to mischaracterize or
conceal payment of bribes or other improper payments;
• Significant unexplained discrepancies between amounts included in
the financial statements in SEC filings and amounts included in
financial reports to other regulators, such as local authorities;
• Use of personal-type bank accounts held in the name of corporate
officers or employees instead of corporate-type bank accounts for
company business; and
• Unusual delays by management in the production of routine
documents requested by the auditor.
certain companies in emerging markets that have been observed by PCAOB
staff or reported in an SEC filing include:
• Existence of two separate and different sets of financial books and
records;
• Discrepancies between the company's financial books and records
and audit evidence obtained with respect to the existence and
accuracy of cash balances, accounts receivable, and revenues;
• Auditor difficulties in confirming cash balances, including when
requesting to visit the offices of the company's bank, or questions
about the authenticity of bank statements provided to the auditor;
• Auditors' follow-up visits to bank offices indicating serious
discrepancies between bank confirmations provided to the auditor
and the bank's actual records, such as previously undisclosed
material borrowings and no record of or significant differences
regarding certain transactions;
• Attempts by management to intercept or alter confirmation requests
or responses;
• Irregularities in sales contracts, such as a company-specific seal
affixed on the sales contract that does not belong to the purported
customer named in the contract;
• Recognizing revenue from contracts or customers whose existence
could not be corroborated;
• Recording sales of products shipped to warehouses or freight
forwarders where no customer is identified;
• Undisclosed material facts surrounding acquisition transactions,
sales transactions, and off-balance-sheet transactions with related
parties;
• Recording of assets for which evidence of control, ownership, or
title is either unclear or difficult to corroborate;
• Potential double counting of fixed assets;
• Recording of uncorroborated operating expenses for which the
business purpose is unclear;
• Manipulation of the accounting records to mischaracterize or
conceal payment of bribes or other improper payments;
• Significant unexplained discrepancies between amounts included in
the financial statements in SEC filings and amounts included in
financial reports to other regulators, such as local authorities;
• Use of personal-type bank accounts held in the name of corporate
officers or employees instead of corporate-type bank accounts for
company business; and
• Unusual delays by management in the production of routine
documents requested by the auditor.
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