19, IFAC, 2010). This paper focuses on the motives behind and the methods used by the fraud perpetrators (i.e., the ones who are responsible for the fraud) to commit financial statement fraud. It also discusses financial statement fraud cases, how these were committed and how these affected the company and the public. Lastly, it also discusses how to prevent and to detect financial statement fraud.
There are many motives behind financial statement fraud. Motives represent the cause that eventually directed the behaviour to commit financial statement fraud and gives us the ‘why’ behind the fraudulent actions (Hasnan, Rahman and Mahenthiran, 2008). There are several motives behind financial statement fraud. These are discussed in the following paragraphs.
One motive is the desire to make the company’s performance look good or look better. The pressure to do this may have come from a desire for the company to obtain more credit; financing or additional capital or the perpetrators want the company to retain or even to increase the value of its stocks (p. 58, Rezaee and Riley, 2010). Another underlying purpose behind this is that the perpetrators want to conceal “deficiencies” in the performance of the company (p. 58, Rezaee and Riley, 2010). Such a pressure may have been created and felt by the perpetrators themselves or were created by other parties (i.e., the stockholders) who are expecting much more than what the perpetrators can actually deliver, hence the need to ‘window – dress’ the company’s financial statements.
Another motive is “to preserve personal status or control” (p. 328, Wells, 2007). This is more on the personal egos of the fraud perpetrators. In financial statement fraud, the perpetrators may be motivated to commit fraud because they are not willing “to admit that their
Despite the tightening of regulations, the continuous improvements in accounting and auditing standards and the increasing watchfulness of the public and regulators alike, financial statement…
Later on, WorldCom was faced with corporate fraud where its financial executives undertook to hide certain expenses during the period of 2000 to 2002. The financial executives sought to misrepresent and delay reporting particular expenses to give investors a false growth picture of the company’s stock prices.
Currently the company is in a process of expanding the products it offers by making different types of shoes that meet different markets demands. For example the company is in the process of manufacturing PHONESHOES that are specifically designed for helping business executives to carry out their operation more efficiently and effectively (Timothy, Loretta, & Kenneth, 2011).
The reports revealed the facts that the company scheduled smuggled money as sales from foreign banks. The reports misrepresented the true value of accounts payable to creditors. The inventory was overstated and the audit reports were doctored. The company’s accounting policy recognized sales returns by crediting the respective amount and at the same time it also counted it as inventory.
Such financial statements that are crucial to an organizations accounts department include the balance sheet, the cash flow statements, profit and loss accounts, and the trial balance (Schrader & Toner, 2013). However, the process is not always rosy as sometimes it is marred with fraudulent incidences of all sorts with the most prevalent being the revenue recognition fraud.
Nevertheless, many corporates and business leaders have been neglecting these standards thus propagating financial frauds (Pinkasovitch 1). Ideally, the increased use of technology plays a significant role in fostering fraudulent activities in the global market where criminals can now commit wide range and complex financial crimes.
history. Presenting significant clues and insights on the nature and implications of financial accounting frauds perpetrated by corporations, the case of WorldCom is particularly instructive from a forensic accounting perspective.
The case study presents an analysis and discussion on the accounting frauds committed by WorldCom that led to its eventual bankruptcy and the criminal prosecution of key corporate executives.
Though the corporation's character flaws can be traced to its earliest days, they flourished under top executive Jeff Skilling. He didn't act in a vacuum. Enron had a distracted, hands-off chairman, a compliant board of directors and an impotent staff of accountants, auditors and lawyers.
cts for the purpose of illegitimate monetary gains is different from distortion of information without causing monetary losses, which can not be termed as fraud. The practice is usually costly for people and organizations once it occurs. It is therefore important to ensure that
They have asked that you make particular reference to HR systems and controls in your report.
The increase of complexity of organizational activities worldwide has led to the limitation of the effectiveness of the measures taken for the control of
The author provides the following accounting principle. The matching principle requires firms to apply the accrual basis of accounting where expenses are matched with revenues. For example, the wages of an employee should be reported in the week that the employee worked and not when the employee was paid.
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