Mortgage fraud has significantly contributed to the country’s financial difficulties and caused turmoil from residential areas to global financial centers. It has contributed to a dramatic increase in home seizures, leaving neighborhoods empty and closed in many states. This triggered a sharp drop in house prices, which devalued the primary value of many families. Mortgage fraud has also destabilized our financial services and securities markets by reducing the value of mortgage-backed securities, causing enormous losses for investors, eliminating some financial institutions, and weakening others. The resulting drop in credit was to the detriment of homeowners and businesses across the country. It has also adversely affected local authorities and schools, which are heavily dependent on property tax revenues.
At the beginning of this decade, the booming housing market, coupled with the relaxation of writing standards, created an ideal environment for fraud’s prosperity. With the rapid rise in housing prices, lenders have explained their writing standards because if standards, regardless of buyer confidence, rising land values will usually cover mortgages. The booming secondary mortgage market also means that mortgage lenders increasingly shift the risk of losing others, thereby minimizing incentives to conduct fraudulent tests on mortgage applications. It is expected that there will be many professional agents — housing, assessors, foreclosure brokers, lawyers, collateral insurance agents, and mortgage brokers — to ensure the legality and rationality of housing transactions. However, at the time of our recent housing boom, many financial incentives were provided to these professionals to ensure the completion of housing transactions, regardless of whether the mortgage was prudent or not.
In the perfect world, financial situation numbers would tell the CPA everything they needed to know about a business. Accurate, accurate numbers and measurements. But the truth is, the CPA also needs words to tell all the stories about the company. That is the sole purpose of the financial statements. Because fraudulent occurrences are embedded in a variety of models, knowing how these schemes work can be a great help in auditing the financial situation of auditors. The accounting principles accepted in the general information require that financial statements (1) include in the financial statements or footnotes all information relevant to the material and (2) not be misleading. These requirements present specific challenges for auditors, starting with the most obvious: How do you make sure management tells you everything you need to know?
Most fraudulent occurrences involve unwanted misconduct, which typically falls into five categories: liabilities, significant events, management fraud, accounting changes, and related transactions.
Failure to take responsibility usually does not necessarily disclose credit terms or contingent liabilities to management. Auditors can find loan clauses by carefully examining the financial institution’s documentation and examining weaknesses, sales contracts, guarantees, and other legal documents for contingent liabilities. While senior management may say they are involved in a lawsuit that could never be harmful, the corporate board does. Ask them. You can independently verify public records at the federal or state level. If you file a lawsuit, you will find it.
Significant events include the onset of obsolescence of products or productions, the emergence of new and competitive products or technologies, potential processes that could affect a company’s financial results, or significant advances or loans – in short, anything that could affect future financial situations. As the auditor runs the risk of senior management voluntarily disclosing these issues, they should ask the company employees they need to know: engineers, key sales staff, warehouse staff, and the finance department. Document your interviews on work papers.
Administrative fraud, no matter how important. These scams are often detected through advice and complaints. Auditors should consider interviews for senior assistants and newly retired employees. You should ask in a cursing tone saying, “Do you suspect that some of your managers can steal your company?” Document the names and responses of the people you are talking to.
If accounting changes have material implications for financial statements, they should be disclosed. Fortunately, these changes should be easy to see. Check previous financial statements and verify that the company uses the same amortization method, income identification criteria, and accrual calculations.
Transactions with related parties usually involve managers who have financial interests that are not disclosed to another entity. For example, in one case, the chairman of the National Pension System stated that he had invested $65 million in pension funds of savings and loan companies. Soon after that, the regulator caught the S&L-information lost. The pension fund auditor knows nothing about related parties’ commitments, so it is easy to avoid tracking them. However, in some cases, your key account personnel may adjust the company records managed by the state of incorporation. If the client officer has also been registered as another company officer, please check again; you want to conclude a related party transaction.
Uncover the deception
The auditor may consider other options. First, use the web search process to unlock all company permissions and key executives. Examine newspaper articles, news reports, life stories, business credit reports, and other relevant documents. Look at the details of any conflicts or disputes that may arise.
Analysts rarely use the second method, but it is entirely acceptable. You have the legal right to request unrestricted access to the company’s documentation office during the inspection. Of course, consumers have a legal right to refuse. Also, inspectors rarely need such access rights but trust the customer to provide the required documentation. The shortcomings in the required auditor’s documents are clear: the client has time not to see (or even change) the necessary accounting evidence. On the other hand, the need for unrestricted access to documents has many benefits. One is that reviewers can look at things that are not in books and records: for example, facts, business plans, competition and market information, and so on.
One is that access to files reduces the chance that an evil client will have time to provide evidence. However, perhaps the most significant advantage of interviewing is that the auditor has the opportunity to evaluate consumer behavior. If a company opposes such access, there is probably a reason for it.
If you are unsure of how to request unrestricted access to files, consider the following when contacting a client for the first time: “Mr. Client, as you know, disclosing books is a major obstacle for you and your employees; what are their files, where to save them and how they work, so we can work out what people need without interruption and help them find lost items in between. You show us where to look; we can just do it ourselves. “And a regular customer may not be satisfied with the auditors’ opinion and may reject such a request. But on the other hand, are you trying to hide something? By answering this question, the auditor can easily find and prevent fraudulent publications.
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