Financial Statement Fraud : The Biggest Types Of Fraud

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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. Investors, public, and officials expect auditors detecting fraud to protect third parties interests. The auditors’ core responsibility is to confirm that financial statements are prepared fairly in accordance with U.S. GAAP. Therefore, auditors should comprehend real-world techniques to identify financial statement manipulation. Purpose of Research and Research Question The purpose of this research is to analyze the cause-effect relationships between the auditor’s role and fraudulent reporting. The primary research questions are: 1. What are the common schemes of financial statement fraud? 2. How the auditor can detect financial statement fraud? The research is built on other studies that focus on financial fraud risks, the auditor’s role, unethical behavior of company executives, and costs of financial statement fraud. The value of study cannot be overemphasized since financial statement fraud contributes to economic crises and damages people lives. Literature Review Looking back... ... middle of paper ... ... 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 fraud. The stability of financial market depends on resilient regulation and confident investors. Investors make rational decisions based on performance assessment and risk evaluation. Therefore, SEC and U.S. GAAP should increase efforts to eliminate financial statement fraud and guarantee the accuracy, transparency, and completeness of financial information.

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