Fraudulent Financial Reporting Schemes
Fraudulent Financial Reporting Schemes
Abstract
Routine examinations, audits, or internal control procedures, do not reveal most accounting fraud. Only 20% is revealed by way of auditing, however whistle blowing accounts for most revealed accounting fraud. Financial statement fraud will usually occur in such schemes as: fictitious revenues, timing differences, concealed liabilities & expense, improper asset valuation, or asset/revenue overstatements (just to name a few), (Frempong, 2012). It is essential one be educated and thoroughly understand the different types of financial statement fraud schemes and the accompanying accounting transactions in order to better identify fraud.
Fraud Schemes and Examples
Fictitious Revenue When management feels there is an immense amount of pressure for revenues to be greater than some pervious amounts it is possible for fictitious revenue schemes to take place. For instance; the creation of unreal and real customers takes place. This is done in order to record revenue by way services or goods that have never happened or were never actually sold. Management creates phony invoices; increase price, or quantity, which then requires a reversal of the sale using a credit in the next period.
Timing Differences
Timing differences usually occur when expenses or revenue have been reported in an incorrect period. This is done in order to shift expenses and revenues, to fit a desired result, between different accounting periods. Recording of expenses in the wrong periods increases income. Delaying of expense recognition by amortizing or depreciating assets very slowly, is another method of increasing income as well as recognizing it early; before it is actually earned increases income by using legitimate sales instead of phony sales. Minimizing taxes payable for the organization is an objective for desiring to decrease income by accelerating expenses into the present period. It is possible this might involve increasing
Abstract
Routine examinations, audits, or internal control procedures, do not reveal most accounting fraud. Only 20% is revealed by way of auditing, however whistle blowing accounts for most revealed accounting fraud. Financial statement fraud will usually occur in such schemes as: fictitious revenues, timing differences, concealed liabilities & expense, improper asset valuation, or asset/revenue overstatements (just to name a few), (Frempong, 2012). It is essential one be educated and thoroughly understand the different types of financial statement fraud schemes and the accompanying accounting transactions in order to better identify fraud.
Fraud Schemes and Examples
Fictitious Revenue When management feels there is an immense amount of pressure for revenues to be greater than some pervious amounts it is possible for fictitious revenue schemes to take place. For instance; the creation of unreal and real customers takes place. This is done in order to record revenue by way services or goods that have never happened or were never actually sold. Management creates phony invoices; increase price, or quantity, which then requires a reversal of the sale using a credit in the next period.
Timing Differences
Timing differences usually occur when expenses or revenue have been reported in an incorrect period. This is done in order to shift expenses and revenues, to fit a desired result, between different accounting periods. Recording of expenses in the wrong periods increases income. Delaying of expense recognition by amortizing or depreciating assets very slowly, is another method of increasing income as well as recognizing it early; before it is actually earned increases income by using legitimate sales instead of phony sales. Minimizing taxes payable for the organization is an objective for desiring to decrease income by accelerating expenses into the present period. It is possible this might involve increasing
References: Beasley, M. C. (1999). COSO 's New Fraud Study: What it Means for CPAs. Retrieved Feb 27, 2012, from questia.com: http://www.questia.com/googleScholar.qst?docId=5001257328 Colby, E. E. (n.d). Financial Statement Fraud, Part 3. Retrieved Feb 27, 2012, from cga-pdnet.org: https://www.cga-pdnet.org/Non_VerifiableProducts/ArticlePublication/FinStatFraud/FinStatFraud_p3.pdf Frempong, S. (2012, Feb 21). Live Chat Session #2 FINF420 Financial Statement Fraud. Retrieved Feb 27, 2012, from campus.ctuonline.edu: https://campus.ctuonline.edu/pages/MainFrame.aspx?ContentFrame=/Home/Pages/Default.aspx