Developing Student Abilities to Recognize Risk Factors: A Series of Scenarios

Misappropriation of assets is an expensive and growing problem. However, detecting this type of fraud is very difficult. Green and Calderon (1996) claim that externally observable risk factors can help signal the likelihood of fraud. Awareness and timely recognition of these “red flags” might improve an individual's ability to assess the potential vulnerability of an organization to fraud. Contained herein is a case consisting of five scenarios that deal with the risk factors identified in Statement on Auditing Standards (SAS) No. 82, Consideration of Fraud in a Financial Statement Audit (AICPA 1997). Throughout the case, you will be confronted with a number of clues that may suggest employee wrongdoing. This case is designed to help you develop your knowledge and professional skill regarding the recognition of fraud risk factors. Although textbooks, and other sources, frequently list various risk factors, these same clues may not be as obvious to you when they actually occur in an organization.