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Accounting Fraud, Earnings Manipulation, and Creative Accounting
Finance & Accounting
Pages 6 (1506 words)
Accounting fraud refers to an intentional and inappropriate falsification of a company’s accounting records.Accounting fraud is geared towards making a company’s financial performance (operating profit) appear better than it is
financial reporting process, and also put into doubt the role played by management, regulators, auditors, and analysts in preventing accounting fraud. Businesses employ deceptive or fraudulent accounting practices such as creative accounting to match the expectations. Accounting fraud refers to an intentional and inappropriate falsification of a company’s accounting records such as the stating of sales revenue and/or expenses. Accounting fraud is geared towards making a company’s financial performance (operating profit) appear better than it is. The motivation for misrepresentation of accounting records hinges on the profit motive and sourcing a favorable financing and dodging debt obligations. Companies commit accounting fraud through activities such as failing to record prepaid expenses or other incidental assets, failing to show certain classifications of current assets and/ or liabilities, or collapsing both short-term and long-term debt into a single amount (Jones 3). Overstatement of sales revenue is one of the techniques employed in committing accounting fraud. Overstatement of sales arises from activities such as channel stuffing and delaying recording of products returned by clients. This is directed at avoiding recognition of those offsets against sales revenue within the current year. Other means by which businesses commit accounting fraud include under-recording expenses such as depreciation expense. ...
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