1B Fraud is defined as someone try to act with intention to cheat other people in order to acquire an unfair or illegal advantage. The fraud happens due to management override the internal control of the organisation and fraud will affect the financial reporting. The main categories of fraud that can affect financial reporting are fraudulent financial reporting and misappropriation of assets. The fraudulent financial reporting is the information in financial statement that will misleading, omission, and misrepresenting the users in order to attract potential investors and fulfil the shareholder’s expectation wealth. The company may has intended to use wrongly the accounting principle which related to classification, method of depreciation, …show more content…
There has a certain situation that will occur this opportunity such as monitoring of management is not effective, complex organisation structure, and internal control components are deficient. In Cendant case, the CUC made various adjustments to incorporate the misstatement into the general ledgers and this causes the opportunity to fraud happens. Moreover, the auditors had looked out the attitude or rationalisation of the company to justify the fraudulent action. The top management may behalf on their own interest but not the behalf of shareholders to maintain or raise the stock price of the company. In Cendant case, the CUC’s management allegedly inflated earnings by recording increasing revenue and reducing expense to meet expectation. 3 A Management override is management over monitor the internal control of the company which hides or alter the document and data in order to achieve the business target which they hoped. The example in of management override occurred in Cendant case is CUC‘s management allegedly raised the earnings by recording fictitious revenues and reducing expenses to meet Wall Street analysts’ earnings expectation.
The analytical procedures is yet another way to detect the fraud. Through analytical procedures the relationship between different figures is develop that support the increase or decrease effect on the balance sheet and the income statement. The following procedures to be performed:
Fraud is usually comprehended as deceptive nature calculated for advantage. And usually this kind of people might be called a fraud. According to the U.S. legal system, fraud is a particular offense with specific features. Fraud must be proved by showing that the defendant’s actions involved five separate elements: 1. A false statement of a material fact; 2. Knowledge on the part of the defendant that the statement is untrue; 3. Intent on the part of the defendant to deceive the alleged victim; 4. Justifiable reliance by the alleged victim on the statement; 5. Injury to the alleged victim as a
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
The Hollate Manufacturing case provided by Anti-Fraud Collaboration has well illustrated how several common issues in an organization contributed to the fraud’s occurrence. These issues can be categorized into two major groups: ethical culture (internal aspect) and internal control system (external aspect). By taking effective actions to enhance these two aspects, an organization can protect itself against the largest frauds, which result in financial and reputational damage.
description as SAB101 is believed to be changing the requirements and not really interpretative of the GAAP standards. The three (3) fraud cases presented in this study is the results of company executives pushing the limit on interpretation gap related to revenue recognition, managing earnings for the purpose of evading material fact, along with dishonest intention will increased the likelihood that fraud is the
Accounting fraud refers to fraud that is committed by a company by maintaining false information about the sales and income in the company books, when overstating the company's assets or profits, when a company is actually undergoing a loss. These fraudulent records are then used to seek investment in the company's bond or security issues. By showing these false entries, the company attempts to apply fraudulent loan applications as a final attempt to save the company by obtaining more money from bankruptcy. Accounting frauds is actually done to hide the company’s actual financial issues.
For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”.
In this case study, in my opinion, the causes of that the Andersen’s auditing of companies accused of accounting improprieties, it’s has a main factor. Because Athur Andersen do not think about the company who is to cooperate whit it is like Athur Andersen to make deceptive accounting. These four real cases to show us how they operate the deceptive accounting.
From this evidence, it is clear that there are different scales and extents of fraud. To begin with it is beneficial to understand the reasons that influence individuals or companies to carry out such fraudulent behaviour. To help illustrate this idea more concisely, an American sociologist, Donald R. Cressey devised the theory, “The Fraud Triangle” which assisted him whilst researching criminology and white collar crime. There are three main factors causing fraud according to this theory including; pressure, opportunity and rationalisation. Firstly, pressure on an individual or a company can originate from issues such as lacking income, debt or other prevailing financial trouble commonly leading to irrational thinking such as an individual believing that their problems are unsolvable which may result in them seeking different courses of action ie, creating the pursuit to commit fraud. The second factor of the theory being opportunity, meaning the course of action which an individual perceives to be the best route in order to solve their problem, commonly with the hope that it will be hidden from higher management finding out. This opportunity will most likely involve the individual taking advantage of their role within the workplace. Finally, the final step of the theory involves
Financial accounting is the analysis, classification, and recording of financial transactions and reporting such information to respective users especially external users who use the information to make decisions about their engagements with the entity. In financial accounting general purpose financial statements are used for external reporting. The public by standards imposes the development of the statements through respective national professional bodies, International Accounting Standards Board and respective company Acts for various nations.
ABSTRACT: The quantity of accounting fraud cases keeps on rising. Fraud is a consistent thing that will reliably be around, and in a bigger number of routes than just a single. An extensive apportionment of organizations out there fighting fraud, either from within the organization, or from outside the organization. Knowing how to manage this is essential for an organization to be productive over an extended period of time. The investigation regarding the matter of accounting fraud will utilize sources from the web and the DeVry School Library.
Identify the failure of the internal control process in each situation and discuss possible the extenuating circumstances that led to the embezzlement.
Financial reporting is an example of an ethical problem for an organization or business. Many busin...
Overall, the company is having ineffective controls regarding different departments and in the whole organization. An effective internal audit department should be established within the organization which should test the effectiveness of these controls on regular basis and make it sure that all controls are working effectively and efficiently with the different departments of the organization. Also the Internal auditor should implement the most effective processes and measures to prevent and detect the fraud, corruption and non compliance with the laws and regulations in the organization. Establishment of internal audit committee would be helpful in this regard which comprises of executive and non executive directors.
Fraud are characterized as a faulty representation of a matter of fact, either with words or conduct, with inaccurate allegations, or with the disguise of what should have been unveiled, which misdirects and