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Auditing - Case Study Example

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Auditing Table of Contents Question 2 3 Question 3 4 Question 4 6 Question 5 7 Question 7 8 Works Cited 11 Question 2 “The tone at the top” is the term used to denote most significant component for encouraging trustworthiness in organization as well as truthfulness in financial controls…
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Download file to see previous pages Due to reluctance of tone of Societe Generale, the company had to face a loss of almost $7.2 billion in 2008. It is in this context that Societe Generale provided higher concentration on the front office activities and there was less consideration towards back office performances. As a consequence, there was imbalance between the control of front office and back office functions (Beasley, M. S. & Et. Al., “How a Low Risk Trading Caused a $7.2 billion Loss”). Due to this reason, Societe Generale was incompetent to develop acute inspections essential for controlling the roles and responsibilities of employees. From the case study, it can be observed that like other organizations, Societe Generale had also become quite determined about drumming up its market worth. Thus, it did not provide much attention towards the traders and its responsibilities for managing the risks, while it rendered high significance for financial organizations in order to maintain profitability (Wartzman, “Executives Are Wrong to Devalue Values”). According to Canadian Auditing Standard (CAS), ‘Tone at the Top’ outlines the principles of a business unit and administration’s obligation to aptitude and beliefs (Hartley, “Tips for Cost-Effective CAS Application”). Tone at the top is necessary for better financial control in any organization. By judging the tone at the top of Societe Generale it can be characterized that it had certain lacunas of internal control which can be categorized as the reason for huge loss faced by the company. For any organization, the top level administration must be clear regarding the rules of business because different organizations have different risk desires. In Societe Generale the management was unable to apply the rules of business throughout the internal working culture. There is need for better internal management which can scrutinize the activities of all employees so that any kind of illegal activities can be detected and prevented accordingly (Beasley, M. S. & Et. Al., “How a Low Risk Trading Caused a $7.2 billion Loss”). Question 3 CAS describes that maltreatments in the financial statements ascend from either fraudulent activities or accidental mistakes (OAS, “Canadian Auditing Standards”). Fraudulent activity comprises three aspects which are pressures or incentives, opportunity and rationalization. Pressure or incentive is the aspect which influences or tends to give reasons to an individual to conduct fraud. With respect to Jerome Kerviel (one of the traders of Societe Generale), as a trader, the earning of Kerviel was quite low in comparison with other top level traders. He even did not consider himself as a trader due to his low earnings. Thus, his incentive for conducting fraudulent activity was to enhance his reputation within the company and thus increase the bonus amount (Beasley, M. S. & Et. Al., “How a Low Risk Trading Caused a $7.2 billion Loss”). Hence, he was constrained for gaining more money by undertaking monetary risks. Rationalization is the other aspect in majority of fraud cases. It involves reconciling the behavior of the individual alleged for committing fraudulent activities. After disclosure of the fraudulent activity of Kerviel, his rationalization was to make sure that his superiors were aware regarding his activities. Kerviel had articulated that his superiors ...Download file to see next pagesRead More
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