Page 8 - Auditors Article

assets or revenue or understating liabilities and expenses. This

was the situation that Patisserie Holdings plc found itself in.
Financial statement fraud differs from other types of fraud in

that the individuals who commit the fraud generally are not

the direct beneficiaries. Members of management may benefit

directly from the fraud by keeping their jobs, selling stock,
receiving performance bonuses, or using the false report to

conceal another fraud.

The primary responsibility for prevention and detection of

fraud lies with management and those charged with

governance. This implies that there must be

1. A good control environment

2. Risk assessment procedures

3. Implementation, operation and monitoring of the IC
system (IC System is a third-party collection agency

attempting to improve financial outcomes for original

creditors and their customers.)

Although there is no indication in the case study that there
was a lack of a prevention and detection system in place at

Patisserie Holdings the sheer scale and severity of the fraud

(bringing the company down in such a short space of time)
would tend to support the view that appropriate controls

were, if not missing then certainly, lacking.