Financial Statement Fraud

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Upper management may ask an accountant to overlook certain financial figures from a balance sheet that may portray the business in a bad light to the public and investors. Omission may not seem like a significant breach of accounting ethics to an accountant because it does not encompass direct operation of numbers or records. This is specifically why an accountant must remain ethically cautious to circumvent falling into such a trap. Accountants need to be educated on what forms of financial statements frauds can be committed and ways to prevent financial statement fraud. A strong system of internal controls helps companies deter employees from committing fraud. Financial Statement Fraud Categories

Financial statement fraud is deliberate misrepresentation, misstatement or omission of financial statement data for the purpose of misleading the reader and creating a false impression of an organization's financial strength (Bradford). Public and private businesses commit financial statement fraud to secure investor interest or obtain bank approvals for financing, as justification for bonuses or increased salaries or to meet expectations of shareholders. Financial statement frauds fall into general categories. These include: Improper revenue recognition- Systems to manipulate revenue figures typically involve posting sales before they are made or prior to payment. Examples include recording product shipments to company-owned facilities as sales, re-invoicing past due accounts to improve the age of receivables, pre-billing for future sales and duplicate billings. Manipulation of expenses and liabilities- Concealment and manipulation of liabilities frauds include failure to record accounts payables or report regular expenses on financial statements. Keeping certain liabilities, leaving notes or loans off-the-books and writing off money lent to executives are also common methods of fraud. An example of this type of scheme is the WorldCom scandal, where significant...
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