Fraud Case Study

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Recommended: Corporate financial statement fraud

Financial statement fraud is one of the biggest types of fraud in today’s business world. The complexity and mechanism of financial statement fraud brought the attention of auditors and regulators. Financial scandals of Enron, WorldCom, Xerox, Tyco, Parmalat, Qwest, and Satam Computers increased the auditors’ responsibility in detecting and preventing fraudulent transactions. Corporate financial fraud had negative consequences for the market capitalization due to gigantic losses of investors. In addition, accounting scandals of early 2000th ruined auditors’ reputation and the public trust.
The regulators, SEC, U.S. GAAP, SOX of 2002, together with AICPA, PCAOB, and COSO concentrate on fraudulent reporting mechanisms and ways to lessen its occurrence. …show more content…

The affecting areas are revenue recognition, related party transactions, and overstated earnings (pp. 232-233). The researchers consider the income manipulation as the most dominant factor of fraudulent reporting. The revenue schemes include fictitious sales, non-existing shipments, re-invoicing, duplicate billing, adjustments in the age of receivables (pp. 234-235). The related party transactions represent special relationships between the involved parties. It creates the conflict of interests. The authors state Enron exercised transactions with a special purpose to misrepresent …show more content…

Financial fraud of large corporations in early 2000th paralyzed the financial market in the United States. The regulators had to find ways to detect and prevent fraudulent reporting. To detect fraud, the auditors should use data-mining techniques and performance evaluation. For the fraud prevention, the auditor should analyze the elements of fraud triangle: opportunity, integrity, and motives.
Fraudulent reporting, also known as a management fraud, aims improving the company results. For that purpose, management overstate assets and revenue, and understate liabilities and expenses. GAAP assigned auditors responsible for detecting financial statement fraud. However, we suggest investors and creditors assisting auditors or government authorities in identifying financial statement

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