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Financial statement fraud
Essay of financial statement fraud
Financial statement fraud essays
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Being an investigator to Apollo Shoes, the financial statement fraud scheme likely to be present is dependent on the nature of the company. Statement on Auditing Standards No. 99 (“SAS 99”) requires to focus on two broad areas of fraud:
(i) fraudulent financial reporting and
(ii) misappropriation of assets
The siphoning of funds can occur in the income statement and capital, based on the corporate governance policies, these two areas are important where financial fraud schemes can be present. Corporate governance include policies that are framed to secure the corporation goals. It include financial goals and shareholders interest also.
The account receivable of the Apollo Shoes is increasing so rapidly might be the corporation has changed the credit terms, providing
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b) Substantive testing should be performed to determine whether the existing scheme is followed by the corporation.
c) Review contracts invoices and deliveries
d) Confirmation to be sent, to ensure the existence if the account receivables.
Further the following are general indicator of the premature recognition of the revenue:
a) Unexplained change in recognition policies;
b) Unexplained improvements in gross margin;
c) Increase in ales has no correspondence increase in cash.
d) The reported account receivable and revenue seems to be increasing rapidly.
e) Unusual sales transaction just before the period end.
f) Large amounts of returns or credits after the close of a period
g) Increased in revenue with no corresponding increase in cost.
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:
a) Comparing the current period figures with the corresponding figures and justify the increase or
However, circumstances changed “in cases in which an auditor fails to establish that applicable auditing standards were followed” (Zack 2011). Since WoolEx Mills’ auditors failed to properly identify the fraud risks that caused the material misstatements, they would be in breach of professional duty to shareholders. Litigation would mostly be pursued by WoolEx Mills’ shareholders, WoolEx Mills, third parties impacted by the auditors services, creditors, and other parties who rely on WoolEx Mills financial statements. Each plaintiff would have the right to sue the auditors for their negligence in performing the audit with due diligence. To prove a breach of contract, WoolEx Mills would need to provide the engagement letter as proof that the auditors did not peform the duties agreed upon. Additionally, WoolEx Mills’ auditors would be charged with either gross or ordinary negligence based on their deviation from proper auditing standards. Since the auditors failed to test the company’s internal controls, they would be found guilty of gross negligence. The auditors would be guilty of ordinary negligence if they forgot to complete a section of the vertical analysis of the Income Statement (Zack 2011) (Krishnan & Shah
Analytical procedures are used at the initiation of an audit in order to carve a clear path into what areas, accounts in particular, of the financial statements of the company we will be placing more emphasis on in order to identify and assess the risks of material misstatement
Sunbeam committed the following two fraud schemes while Al Dunlap was the company’s Chief Executive Officer (CEO): (1) Improper Timing of Revenue Recognition via Bill Hold Sales, Consignment Sales, and Other Contingency Sales and (2) Overstating Earnings via Improper Use of Restructuring Reserves. A series of detection methods were utilized in each fraud scheme to determine the indicators that proved that Sunbeam was involved in manipulating its financial data. The most utilized method for detecting Sunbeam’s fraud was Financial Statement Analysis. Utilization of Annual Reports and Disclosures were utilized just as much as Corporate Research and Media while Business Plan Analysis was ranked as being the fourth most used. Finally; leadership
To counter this problem, computer assisted audit techniques have been developed. These systems are able to provide a more in depth analysis of the utilized billing systems. Computer assisted audit techniques also enable highly efficient assessment of transactions. By utilizing this system, an auditor could gain a clearer picture of the revenue reporting mechanisms that are being utilized by the business office. Once the information is derived, however, its interpretation, while simpler, will still require an individual that is knowledgeable in regard to the revenue cycle
This report gives the brief overview of the concept of corporate governance, its evolution and its significance in the corporate sector. The report highlights various key issues and concerns that are faced by the organizations while effectively implementing and promoting Corporate Governance.
But the stakeholders play a very important role in preventing and deterring fraud. Stakeholders includes customers, suppliers, employees, the community and the government. Each play an important role since they have an interest in the integrity of financial reports of the publicly-traded company. Employees have a vested interest in the company’s success and they have a responsibility to protect their interest. Their roles may start from the bottom but they are key players in the company. To help deter or prevent financial statement fraud, the employee must report financial reporting fraud if it is detected. This can be done by way of a vigorous whistleblower program of some other tip line provided by the company. The community and its members, including the news media, can play a regulator role by confirming that the company is a good citizen with fair business practices. Shareholders should make sure that any company in which they’d like to invest is in compliance with standards of oversight and ethics. Investors need to play and active role also. They should be actively involved by monitoring the companies in which they invest. They should attend shareholder’s meeting regularly to discuss concerns and check the books of the company. This will allow them to stay current with what is going on within the company. Shareholders should always remain vigilant and make
Dowd (2016) runs above and beyond with the clarification to state accounting fraud incorporates the change of accounting records in regards to sales, incomes, costs and different components for a profit motive, for example, boosting organization stock prices, getting ideal financing or maintaining a strategic distance from obligation commitments. Dowd is of the feeling that covetousness, absence of straightforwardness, poor administration data and poor accounting interior controls are a couple of explanations behind accounting fraud. (Dowd,
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
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,
The office of the Director of Corporate Enforcement (ODCE, 2015), Ireland defines Corporate Governance as “the system, principles and process by which organisations are directed and controlled. The principles underlying corporate governance are based on conducting the business with integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions and complying with all the laws of the land”. It is the system for protecting and advancing the shareholder’s interest by setting strategic direction for the firm and achieving them by electing and monitoring the capable management (Solomon, 2010). It is the process of protecting the stakes of various parties that have their interest attached with a company (Fernando, 2009). Corporate governance is the procedure through which the management of the company is achieving the goals of various stake holders (Becht, Macro, Patrick and Alisa,
Another type of an analysis that can be utilized is the bank record analysis. This is simply following the money trail and tracking how much money is being spent.
Corporate governance is the set of guidelines that determines the control and organization of a particular company. The company’s board of directors is in charge of approving and reviewing changes to this set of formally established guidelines. Companies have to keep in mind the interests of multiple stakeholders, parties who have an interest in the company. Some of these stakeholders include customers, shareholders, management, and suppliers. Corporate governance’s focus is concentrated on the rights and obligations of three stakeholder groups in particular: the board of directors, management, and shareholders. Corporate governance determines how power is split between these three stakeholders. A company’s board of directors is the main stakeholder that influences the corporate governance of a company (Corporate Governance).
The function of accounting information system transforms from simple storage to a supportive tool of decision-making, producing high quality information and detailed analysis, bringing about real economic benefits. However, it also challenges the skills and ethics of modern accountants, putting forward the new demand for the professionals who use the accounting information system. As a result, two capabilities are recognized to be essential for the professionals. One is the competency, it lists out a pattern of knowledge used in the job as well as be aware of the link between information systems and decision-making. On the other hand is the ability of analyzing and diagnosing, which is good at problem solving. Another challenge is about ethical issue, requiring integrity and confidentiality as a professional quality of an accountant. To conclude, the accounting information system integrating the information, analyzing and supporting decision-making will become more important in the forming of a company’s strategy. Understanding the structure of accounting information system would lead to a competitive advantage over competitors in the
...eve efficient resource allocation. Failure to achieve appropriate and efficient corporate governance could result in sub-optimal allocation of resources, abuses and theft by management, expropriation of outside shareholders and creditors, financial distress and even bankruptcy. While evaluating the role of corporate governance, it is imperative to also consider the levels of development of market institutions and other legal infrastructure including laws and enforcement that provide good standard for investor protection as well as ownership structures.