Contemporary Cases of Financial Statement Frauds

Financial statement fraud is not as prevalent or publicised as embezzlement, but

the losses are much higher (ACFE, 2016). It was a fact that Bernie Madoff took
investors’ money, which was not the only fraud he perpetrated, his staff
painstakingly constructed false books, records and statements that were sent to
investors, showing their investment value growing steadily. Not many people go
to jail for committing financial statements fraud, and often the perpetrators do not
even profit from it. In many instances, those involved in it consider their actions
beneficial to the company that employed them.

1. Cadbury false accounting

On April 11, 2008, Nigeria’s Security and Exchange Commission (SEC) imposed
a fine of N21.2 million (USD180,783) on Cadbury Schweppes’s local Nigeria
Unit for falsifying its accounts between 2002 and 2005. Cadbury is a leading
maker confectionary in Africa’s most populous country. An official internal
review showed that the accounts was overstated by n13.25 billion. The
investigation showed that, Bunmi Oni, the managing director in agreement with
the board, between 2002 and 2005, used stock buy-back, cost deferrals, trade
loading and false suppliers stock certificates to manipulate its financial reports
that were issued to the public and filed with the commission, as reported by SEC.
the Investors in the Company lost heavily as the share price experienced a down
turn (Osaze, 2011).

SEC further reported that, Oni who was fired shortly after the fraud was
discovered manipulated the books of account with connivance of external
auditors and the company registrars. The regulator ban Oni and suspended several
directors and senior employees from dealing with the Nigerian Stock Market. The
external auditor was ordered to pay a fine of N20 million and the registrar N8.3
million within 21 days or forfeit their registration with SEC.
 2. Toshiba Institutional Misreporting

Following the financial meltdown of 2007/2008, Toshiba, one of the Japan’s

oldest and most respected companies, exhorted the leaders of its many business
units to meet aggressive targets for more revenue and profitability. When the
circumstances could not support the tall ambition, the managers altered the books
to provide the illusion they had met their performance goals. The findings of the
investigation were released in 2015. The accounting frauds took a long period
and were perpetrated under a number of CEOs. The key methodology was under
the percentage-of-completion method for contract work. Between 2008 and 2013,
expenses were massively understated in earlier period and overstated in later
periods. The Company overstated its profit (2008 to quarter 3 of 2014) by over
USD1.3 billion.

3. Enron and WorldCom Financial Statements Frauds

The Enron debacle revealed an overstated profit of over USD 586 million in four
years while in Worldcom, operating expenses of over USD 3.8 billion were
capitalised, thus overstating the profit . It was discovered in 2001. Bourke (2010)
reported that in the wake of high profile frauds in Worldcom and Enron, the
average loss per case increased to USD 400 million. The author reported that the
Enron scandal led to the disintegration of Arthur Anderson, an international
accounting firm. The fraud in Enron that was discovered in 2001 led to the
formation of Sarbanes-Oxley committee, the recommendations of the committee
were codified in the Sarbanes-Oxley Act of 2002 of the United State of America.
References.

ACFE (2016). Report to the Nations on occupational Fraud and Abuse. Global
Fraud Study, Glossary of terminology.

Bourke, N. M (2006). Are Attributes of Corporate Governance Related to the

Incidence of Fraudulent Financial Reporting? Newzeland: The University of
Waikato.

Investigation Report (2015). Summary Version: Independent Investigation

Committee for Toshiba Corporation (English translation version).

Osaze, E. (2011). The specificities of Value Melt Down in the Nigerian Stock
2008 – 2010. In Professional Chair Lecture. Benin City: University of Benin.