Questions 4&5

REQUIRED [1] Using auditing standards or your textbook, define the following control-related terms: [a] Control environment [b] Segregation of duties [c] Restricted access [d] Preventative and detective controls [e] Design and operating effectiveness [2] The term tone at the top is typically associated with a firm's control environment. How would you characterize Socit Gnrale's tone at the top and what effect do you believe that had on oversight at the trading-desk level? [3] Fraud research indicates three conditions must exist before a fraud occurs: (1) Pressure/ Incentive, (2) Rationalization, and (3) Opportunity. What do you think were Jrme Kerviel's incentives and rationalizations for committing fraud? What created the opportunity for fraud? [4] In an independent audit of the financial statements of a large bank, why do auditors typically follow a controls reliance strategy (i.e., obtaining some audit assurance via controls testing)? In the case of Socit Gnrale, do you believe the external auditors gathered much controls- related evidence regarding the Delta One trading desk? Why or why not? [5] What do you believe were the three most serious control deficiencies at Socit Gnrale? For each deficiency listed, indicate whether the deficiency related to poor design or poor operating effectiveness. Describe how you would remediate or fix each of the deficiencies listed. [6] What are the advantages and disadvantages of promoting personnel across functional areas within a company (e.g., from risk and controls to operations)? [7] The loss from Kerviels rogue trading resulted in a loss many times greater than audit materiality. The external auditor did not discover the misstatement. Was this an audit failure? Conduct internet research to determine if the external auditors, Ernst & Young Audit and Deloitte & Associs, were named in law suits associated with the loss due to the trading fraud