Addressing Fraud Risk by Testing the Effectiveness of Internal Control over Financial Reporting – Case of Romanian Financial Investment Companies

The magnitude and complexity of portfolio management operations require that Romanian Financial Investment Companies are to implement and monitor an adequate internal control system over financial reporting. The assessment performed by a public accounting firm in connection with internal control over financial reporting process, provides a major impact upon the reliability of financial statements prepared by these entities and therefore can significantly influence investment decisions. The paper is focused on the relation between the effectiveness of internal controls and risk fraud, involving either misappropriation of financial assets or fraudulent reporting. We based our research on the assumption that an increase of internal controls’ effectiveness results in diminishing risk fraud involving financial assets. We attend to identify significant weak points in the chain of internal controls related to financial assets, capable to increase risk fraud and implicitly to alter the reliability on financial reporting process. Projecting reasonable countermeasures designed to respond the assessed fraud risk factors is also a main preoccupation under author artwork.