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Report on Financial Statement Fraud Scheme - Essay Example

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Report on Financial Statement Fraud Scheme

The inventories were shared between the various stores of the company to boost sales. Various external vendors were arranged to ship merchandises of the company claiming fake discounts. Loads of merchandises were sold to wholesalers and then the receipts were spread to individual stores of the company. These illegal money was entered and circulated between the Antar family and was parked into undisclosed foreign bank accounts. The initial reports suggest that when Crazy Eddie went public about twenty years ago, its shares were traded at $8. The company’s shares have inflated 10 times during the years due to manipulation of accounts. By showing fake sales, misrepresented inventories, doctoring and window dressing financial statements, the company was able to hide its true picture of financial position from the public. Thus, the company’s stocks looked more attractive from outside than it actually was. The sales of the company never fell since the merchandises circulated between the various stores and was treated as revenues. Such fraudulent practices helped Crazy Eddie to maintain a healthy double-digit growth and consequently inflated the company’s share prices. ...
Due to this, the creditors got the impression that the company’s demand was unmatched and hence they extended the credit period. The payments of actual sales were made in instalments. Each instalment of a particular sale was treated as individual sales. The sharing of inventories between some forty stores helped the company conceal true facts. Scope of Examination Financial statement frauds challenge the integrity and corporate social responsibility of companies. These frauds may be malpractices in the form of intentional misrepresentation, alteration of financial reports, falsification, doctoring business documents and business transactions, deliberate window dressing and misapplication of accounting policies, inflating sales and inventories, bribes, fictitious revenues, over or under statements in financial statements, and so on. The financial statement fraud examination aims to implement integrity and CSR in all companies by encouraging transparent, reliable, and investor friendly financial statement. Financial statement examination justifies the concept of audits and establishes the confidence of society as well as all market participants. It tries to make the capital market more efficient by providing perfect information for all participants. Financial scandals not only ruin the repute of the company, it might also create negative sentiments in capital markets, affects the nation’s economic growth and prosperity. It gives the culprits one more chance to plead guilty and rectify accounting practices and malpractices. Fraud examination can help protect the company’s minority shareholders’ from potential bankruptcy or substantial economic loses. And finally it helps bring trust and public confidence in auditing profession and ...Show more


REPORT ON FINANCIAL STATEMENT FRAUD SCHEME CASE STUDY: THAT WAY LIES MADNESS  MEMO Date: March 02, 2013 To: The Management of Crazy Eddie Inc. From: Serious Fraud Investigating Officer Subject: Financial statement fraud investigations and findings report Summary of Investigation The financial statements of Crazy Eddie revealed that the company is making money by practicing fraudulent activities…
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Report on Financial Statement Fraud Scheme essay example
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