Academic journal article Journal of the International Academy for Case Studies

The Hack Attack at Winter's Tale Publishing: The Forensic Accounting/internal Auditing Perspective

Academic journal article Journal of the International Academy for Case Studies

The Hack Attack at Winter's Tale Publishing: The Forensic Accounting/internal Auditing Perspective

Article excerpt

STUDENT LEARNING OBECTIVES

The case can be examined across a business program in multiple courses to provide students with a holistic approach to evaluating the ramifications of business decisions to multiple dimensions of an organization. The case can also be addressed in an individual course. Upon reading, analyzing and discussing the case from the accounting/internal control perspective, students should be able to:

1. Demonstrate an understanding of internal control concepts related to fraud risk factors of AU [section] 316 and objectives, components, and principles of the COSO's Internal Control-Integrated Framework (2013).

2. Apply analytical and critical thinking skills as they analyze the case to identify internal control deficiencies and recommend mitigating internal controls to address the deficiencies.

3. Evaluate the case from the perspective of the Integrated Framework's objectives, components and principles and from the perspective of the AICPA/CPA Canada Trust Services Principles and Criteria.

RECOMMENDATIONS FOR TEACHING APPROACHES

The case can be taught from multiple perspectives in several different courses such as upper level marketing, business strategy, business law, human resources, forensic accounting/auditing, and information technology management. The following case notes address the issues from the perspective of forensic accounting/ auditing. Case coverage should take approximately 30 to 45 minutes of course time. Senior level students may be asked to analyze and write up the case using a case analysis template such as:

Background

Main Problem

Minor Problems (stemming from main problem)

Possible Solutions

Recommended Solution and Implementation

Recommended Precautionary Measures and Implementation (What should have been done to prevent this situation?)

Possible forensic accounting/internal auditing questions that may be provided to students include the following:

Target courses: Forensic Accounting, Internal Auditing, Financial Auditing

1. Define fraud. Describe the difference between fraud and errors as defined in AU [section] 316, Consideration of Fraud in a Financial Statement Audit. What are the two types of misstatements relevant to the independent auditor's consideration of fraud? As the independent auditor of Winter's Tale Publishing, identify whether you believe the hacking was a fraudulent act, an error, or neither.

In general, fraud is the intentional deception in which the perpetrator receives financial or personal gain. According to AU [section] 316.05, the difference between fraud and an error depends on intent to materially misstate the financial statements. Fraud is an intentional act to materially misstate the financial statements.

The two types of misstatements relevant to the external auditor include (1) misstatements arising from fraudulent financial reporting and (2) misstatements arising from misappropriation of assets. Both types of misstatements cause the financial statements to be in nonconformance with generally accepted accounting principles (GAAP).

2. Describe the fraud risk factors identified in AU [section] 316 as the risk factors relate to John Winters and Will Martin.

The three risk factors include incentive or pressure, opportunity, and rationalization or attitude. Pressures describe the reasons that fraud is committed. Opportunity is the existence of circumstances which allow fraud to be committed. Most often, these circumstances result from a lack of internal controls. Rationalization is the perpetrator's ability to justify and intentionally commit a dishonest act.

John's apparent successes had recently been met with a six-month drought of clients cancelling. In addition, John had invested most of his income in the business; he was attempting to make a name for himself, and had bills backing up with payroll to meet. …

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