Lesson: Management Fraud

In this lesson, the focus is on management fraud and how it can be detected and prevented by auditors. The lesson highlights collusion as a way to circumvent internal controls and explains the importance of vacations for key employees in order to detect fraud. The inherent limitations of internal controls when it comes to management override and the subjectivity of accounting estimates and principles are also discussed. Finally, the lesson provides some potential indicators of management override of controls, such as rarely used accounts becoming active, post-closing journal entries with no explanation, and unusual individuals making journal entries. The emphasis throughout the lesson is on staying vigilant and being able to identify signs of management fraud.