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Financial Statement Fraud

Financial Statement Fraud

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Published by Harish
The article tries to explain the various type of occupational fraud can happen and some scheme of fraud which could remain undetected also if done in a more planned manner. In financial fraud history the statement fraud has been detected because the pace of fraud and quantity was not acceptable and raised alarm. If the fraud is done in more planeed manner by thoose indivduals it would have been never detected like the Satyam fraud which was continued for 7 years.
The article tries to explain the various type of occupational fraud can happen and some scheme of fraud which could remain undetected also if done in a more planned manner. In financial fraud history the statement fraud has been detected because the pace of fraud and quantity was not acceptable and raised alarm. If the fraud is done in more planeed manner by thoose indivduals it would have been never detected like the Satyam fraud which was continued for 7 years.

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Categories:Types, Research
Published by: Harish on Mar 20, 2009
Copyright:Attribution Non-commercial

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05/10/2014

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See the irony, for Satyam Fraud case, class action suit have been filed in US whereas inIndia still CBI, SFIO inquiry is going on. But even after fair trails how the investor in Indiawill be compensated due to massive nature of fraud. Whereas in US due to class actionsuit, investor will at least recoup part of the losses if won the same in court. Should Indiaalso have such kind of law to prevent management disaster like Satyam fraud. Need muchpolitical will.. but may happen in future.Was wondering how many options would be available to do financial statement fraud.Read in various website that financial statement fraud often called as occupational fraudcan be categorised into the following three categorya ) Financial Statement fraudb ) Misappropriation of assets andc ) Corruption & Bribery.There are various ways in which the financial statement fraud can be done. SEC has lotsof history and also various research has been done on the same topic identifying variousmethods. Some of this type of risk can be categorised as follows (courtesy SEC- AAER's filing)
Manipulation of Receivables
Misappropriation of Asset
Manipulation of Assets
Bribery & Kickbacks
Manipulation of Expenses
Goodwill
Manipulation of Liabilities
Improper Disclosures
Manipulation of Reserves
Investments
Revenue RecognitionRevenue recognition is one of the important and most used way of doing financialstatement fraud.Even in Revenue recognition it can bea ) Recognizing inappropriate amount of revenueb ) Recognition of revenue from sales transactions billed, but not shippedc ) Recognition of revenue where there are contingencies associated with the transactionthat have not yet been resolvedd ) Improper accounting for or failure to establish appropriate reserves for returnse ) Recognition of revenue when products or services are not delivered
 
Harish Kesharwani ( C.A, Grad C.W.A, M.Com)
 
Thus there are various schemes devised so far and will be devised in future as more andmore people are resorting to financial statements fraud to achieve the desire objective notachieved.However one thought came in my mind. Do this people doesn't know that there is highprobability of getting caught sooner than latter. Then also there is along list.. is the legal,accounting system is not effective enough to prevent such thing with big losses..Devising a way by which the chance of getting caught is minimal is more important. I wasthinking what would be possible way to do whereby statement dressing is possible withless detection which the auditors and the investors should beware..Here are some examples which can lie undetected if not observed properly by auditorsand or investors.Scheme No 1.Imagine now if Company B & C merged than what will happen to the fictitious sales &purchase balance in both the books and how Company A would be benefited is just amatter of permutation and combination. The things can be made more complicated ifmore and more companies are involved and the nature of transaction could not beascertained. Thus the concern is how do we detect such fabrication .. things are not thatcomplicated as it looks.The auditor just need to check whether in Company A books there is journal entry whichoffset the account of two parties. When such entries are identified then a thoroughinvestigation needs to be done if the amount is material to the Company A size.
 
Harish Kesharwani ( C.A, Grad C.W.A, M.Com)
Company ACompany BCompany CSale to BUnrelated PartyUnrelated PartyPurchase from A

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