This document provides a literature review on accounting frauds. It begins by defining accounting fraud and distinguishing it from earnings management. It discusses the "fraud triangle" model which identifies opportunity, motivation, and rationalization as key drivers of fraud. Common actors involved in accounting fraud are CEOs and CFOs who are able to override internal controls. Various fraud schemes used to misstate financials are described, as well as incentives and consequences of fraud. The literature review aims to improve understanding of fraud anatomy to enhance detection and prevention.
Forensic Accounting is also known by other names like Forensic Accountancy or Financial forensics. Forensic Accounting has been defined as “accounting analysis that can uncover possible fraud that is suitable for presentation in court”. Copy the link given below and paste it in new browser window to get more information on Forensic Accounting:- http://www.transtutors.com/homework-help/accounting/forensic-accounting.aspx
This document discusses forensic auditing and its importance in detecting financial fraud. It provides definitions of forensic auditing, noting that it examines legalities and blends techniques from other audit types to determine if financial statements accurately reflect business value or if any fraud occurred. Forensic auditing aims to gather legally tenable evidence to identify fraud and persons responsible, unlike statutory audits that express opinions on financial statement accuracy. Detection techniques for forensic audits include critical point auditing to filter fraud symptoms and propriety auditing to evaluate economy, efficiency and efficacy of transactions.
Forensic accounting is a specialized area of accounting that investigates financial fraud and white collar crimes. It has been used for nearly 200 years to assist courts and investigate matters like employee theft, securities fraud, and insurance fraud. Forensic accountants use techniques like cash flow analysis and net worth calculations to detect anomalies and trace missing funds. Their work supports litigation, investigations, and helps protect businesses, banks, and the public from financial deception and crime.
This document provides an overview of forensic accounting. It begins by defining forensic accounting as involving investigative services and litigation support related to fraud investigations and legal actions. It describes the roles of investigative forensic accountants and forensic accountants providing litigation support. It provides examples of situations forensic accountants investigate, such as employee theft, vendor fraud, and tax evasion. It also discusses the Association of Certified Fraud Examiners and internal auditing.
This document provides an overview of forensic accounting. It defines forensic accounting as applying investigative and analytical skills to resolve financial issues in a legal context. Examples of areas it can be applied include economic damages calculations, post-acquisition disputes, bankruptcy, securities fraud, tax fraud, and computer forensics. The document discusses the evolution of forensic accounting in India, with Kautilya mentioning fraud in his book. It outlines objectives and techniques of forensic auditing, and challenges like lack of specific guidelines in India. It also mentions government agencies that combat fraud.
Forensic accounting involves investigating financial crimes and disputes. It includes two main areas: investigative accounting which deals with crimes like theft and fraud, and litigation support which helps quantify economic damages in legal cases. Forensic accountants gather and analyze financial evidence, develop tools to analyze evidence, and communicate their findings through reports and testimony in court. While starting in the US in 1995, forensic accounting is growing in India due to increased fraud and a shortage of qualified professionals. Common areas forensic accountants work include fraud investigation, business disputes, and insurance and personal injury claims.
This document discusses forensic auditing. It begins by defining forensic auditing as investigating financial records to determine if fraud has occurred. A forensic accountant requires skills in accounting, auditing, and communication. Forensic audits aim to discover if fraud happened, identify those involved, quantify losses, and present findings. There are three broad categories of fraud - corruption, asset misappropriation, and financial statement fraud. A forensic audit involves accepting the investigation, planning, gathering evidence through various techniques, and reporting findings which may be presented in court. It requires a skilled team comfortable with legal proceedings.
This document provides an overview of forensic accounting. It begins by defining forensic accounting as involving investigative services and litigation support related to fraud investigations and legal actions. It describes the roles of investigative forensic accountants and forensic accountants providing litigation support. It provides examples of situations forensic accountants investigate, such as employee theft, vendor fraud, and tax evasion. It also discusses the Association of Certified Fraud Examiners and internal auditing.
Forensic Accounting is also known by other names like Forensic Accountancy or Financial forensics. Forensic Accounting has been defined as “accounting analysis that can uncover possible fraud that is suitable for presentation in court”. Copy the link given below and paste it in new browser window to get more information on Forensic Accounting:- http://www.transtutors.com/homework-help/accounting/forensic-accounting.aspx
This document discusses forensic auditing and its importance in detecting financial fraud. It provides definitions of forensic auditing, noting that it examines legalities and blends techniques from other audit types to determine if financial statements accurately reflect business value or if any fraud occurred. Forensic auditing aims to gather legally tenable evidence to identify fraud and persons responsible, unlike statutory audits that express opinions on financial statement accuracy. Detection techniques for forensic audits include critical point auditing to filter fraud symptoms and propriety auditing to evaluate economy, efficiency and efficacy of transactions.
Forensic accounting is a specialized area of accounting that investigates financial fraud and white collar crimes. It has been used for nearly 200 years to assist courts and investigate matters like employee theft, securities fraud, and insurance fraud. Forensic accountants use techniques like cash flow analysis and net worth calculations to detect anomalies and trace missing funds. Their work supports litigation, investigations, and helps protect businesses, banks, and the public from financial deception and crime.
This document provides an overview of forensic accounting. It begins by defining forensic accounting as involving investigative services and litigation support related to fraud investigations and legal actions. It describes the roles of investigative forensic accountants and forensic accountants providing litigation support. It provides examples of situations forensic accountants investigate, such as employee theft, vendor fraud, and tax evasion. It also discusses the Association of Certified Fraud Examiners and internal auditing.
This document provides an overview of forensic accounting. It defines forensic accounting as applying investigative and analytical skills to resolve financial issues in a legal context. Examples of areas it can be applied include economic damages calculations, post-acquisition disputes, bankruptcy, securities fraud, tax fraud, and computer forensics. The document discusses the evolution of forensic accounting in India, with Kautilya mentioning fraud in his book. It outlines objectives and techniques of forensic auditing, and challenges like lack of specific guidelines in India. It also mentions government agencies that combat fraud.
Forensic accounting involves investigating financial crimes and disputes. It includes two main areas: investigative accounting which deals with crimes like theft and fraud, and litigation support which helps quantify economic damages in legal cases. Forensic accountants gather and analyze financial evidence, develop tools to analyze evidence, and communicate their findings through reports and testimony in court. While starting in the US in 1995, forensic accounting is growing in India due to increased fraud and a shortage of qualified professionals. Common areas forensic accountants work include fraud investigation, business disputes, and insurance and personal injury claims.
This document discusses forensic auditing. It begins by defining forensic auditing as investigating financial records to determine if fraud has occurred. A forensic accountant requires skills in accounting, auditing, and communication. Forensic audits aim to discover if fraud happened, identify those involved, quantify losses, and present findings. There are three broad categories of fraud - corruption, asset misappropriation, and financial statement fraud. A forensic audit involves accepting the investigation, planning, gathering evidence through various techniques, and reporting findings which may be presented in court. It requires a skilled team comfortable with legal proceedings.
This document provides an overview of forensic accounting. It begins by defining forensic accounting as involving investigative services and litigation support related to fraud investigations and legal actions. It describes the roles of investigative forensic accountants and forensic accountants providing litigation support. It provides examples of situations forensic accountants investigate, such as employee theft, vendor fraud, and tax evasion. It also discusses the Association of Certified Fraud Examiners and internal auditing.
Forensic Accounting Examination in a Minority Shareholder Oppression CaseCBIZ, Inc.
Minority shareholder oppression cases often require a forensic accounting examination to document issues of oppression. Forensic accountants analyze company books, records, tax returns and conduct interviews to uncover patterns of behavior that contribute to oppression such as excessive compensation to controlling shareholders or restricting dividend payments. A valuation expert also typically calculates the fair value of the company since the controlling shareholders often try to buy back stock from minority owners at depressed prices below fair market value.
The document provides details about a case study on forensic audit. It discusses what forensic audit is, types of fraud, the fraud triangle model, and the Satyam fraud case. The Satyam case involved falsified financial statements, inflated revenues and profits, fake bank balances and fixed deposits totaling Rs. 7,800 crores. Weak internal controls and governance failures at Satyam such as unethical conduct, false books, dubious roles of directors, auditors and banks allowed the fraud to occur and go undetected for years.
This document provides biographies of the authors of a book on internal audit and fraud prevention. It introduces John Milner, Martin Ghirardotti, Enrique Pastor, and Miguel del Olmo, who have extensive experience in fields including internal audit, risk evaluation, fraud prevention and detection, and corporate governance. They have worked with companies and organizations in countries like Ireland, Argentina, Mexico, the United States, South Africa, and throughout Latin America. The document establishes the authors' expertise on the topic which will be covered in the book.
This document discusses forensic accounting. It defines forensic accounting as integrating accounting, auditing, and investigative skills, especially for use in potential court cases. Forensic accountants conduct examinations of financial statements using investigative and auditing techniques. They may provide expert advice in court or help companies improve internal controls. The document outlines the techniques, skills, and stages of forensic accounting assignments, including planning, evidence collection, analysis, and reporting. It also discusses the ethical principles and types of cases forensic accountants may work on.
The impact of forensic accounting on fraud detectionAlexander Decker
This document summarizes a research study that examined the impact of forensic accounting on fraud detection in Nigerian firms. The study aimed to determine the relationship between fraud detection and forensic accounting. It reviewed definitions and types of forensic accounting and fraud. Data was collected through questionnaires administered to 15 firms and analyzed using descriptive statistics and regression analysis. The study revealed that the application of forensic accounting services affects the level of fraudulent activities in firms. It concluded that forensic accounting can help curb fraud in companies.
Discover the 4 most common types of forensic accounting investigation and what you need to know before hiring a forensic accounting investigator for your case.
The document discusses Phar-Mor, a company that engaged in accounting fraud to disguise losses and maintain the appearance of success between 1985 and 1992. It provides a framework for detecting financial statement fraud using a "fraud exposure rectangle" examining management, relationships, organization/industry, and financial results. Strategic reasoning considers how fraud perpetrators may conceal fraud and how auditors can modify typical tests to detect concealed schemes.
This document discusses forensic accounting, including what forensic accountants do and the typical process they follow. It defines forensic accounting as utilizing accounting, auditing, and investigative skills to identify, interpret, and communicate evidence from financial transactions and events, especially for actual or anticipated legal disputes. It describes that forensic accountants perform investigations and analyses of complex financial issues to assist with litigation, insurance claims, fraud investigations, and other legal matters. The typical process involves meeting with clients, collecting relevant evidence, analyzing the evidence, preparing a report, and presenting findings.
Forensic accounting is the application of accounting principles, theories and techniques to facts or hypotheses at issue in a legal dispute and encompasses every phase of litigation services. A forensic accountant uses accounting, auditing and investigative skills to assist in legal matters. This document provides an overview of forensic accounting and forensic auditing, including definitions, the differences between statutory and forensic audits, the approaches and techniques used in forensic audits and the functions of a forensic auditor.
Forensic Accounting – How To Uncover Fraud Jan 2012Hermerding
Richard Hermerding provides an overview of forensic accounting and how it can help uncover fraud. He discusses his qualifications and experience in forensic accounting. The document then discusses the seriousness of fraud based on surveys, who typically commits fraud, common fraud schemes, and warning signs. It provides examples of how forensic accounting techniques like document review, interviews, and financial transaction analysis can be used to detect financial statement fraud and other frauds.
This document discusses fraud and error in an audit of financial statements. It defines fraud and its characteristics, describing fraudulent financial reporting and misappropriation of assets. It outlines risk factors for fraud related to misstatements in financial reporting and asset misappropriation. It discusses the auditor's responsibility to consider fraud, including assessing risks of material misstatement due to fraud and designing audit procedures to detect such misstatements. It also describes reporting and documentation requirements when fraud or errors are suspected.
Forensic audit involves a thorough examination of financial records and transactions to detect and investigate fraud, embezzlement, and other illegal activities. The goal is to determine if fraud has occurred and identify those responsible. Forensic auditing techniques include critical point auditing to identify unusual credit or debit transactions, and propriety auditing to examine if expenditures were necessary. Forensic audits require skills in understanding a company's business and legal environment, using computerized audit procedures, and taking a skeptical approach compared to traditional audits. Forensic auditors must thoroughly examine all records and documentation to substantiate any findings of fraud.
This document discusses forensic accounting and its role in combating fraud. It begins by providing statistics on the scale of fraud in India. It then introduces forensic accounting as applying accounting skills to investigate potential economic crimes. The document outlines the objectives and methodology of the study. It discusses the need for forensic accountants in India given the scale of fraud losses. The role of forensic accountants in investigating financial statements, advising lawyers, and testifying in court is described. The conclusion is that forensic accounting is an effective tool against corporate fraud and malpractice.
This document provides an overview of business risk, control systems, and risk of fraud at Bison Hospitality Ltd. It discusses components of business risk and how internal control systems aim to ensure reliability of financial information, effective operations, and compliance. However, all internal controls have limitations from human error, breakdowns, management override, and collusion. The document assesses the level of risk at Bison Hospitality Ltd. as being at a maximum due to high risk of material misstatement and ineffective internal controls. It provides some pictures and descriptions of Bison Hospitality Ltd.'s control systems and recommends further tests to assess controls and potential fraud.
This document provides an overview of auditing, including:
- The objectives and evolution of auditing from detecting errors and frauds to ascertaining if accounts are true and fair.
- Key definitions including that auditing is a systematic and independent examination of data, statements, records, operations and performance for a stated purpose.
- The features and objectives of auditing including verifying financial statements exhibit a true and fair view, and expressing an opinion on the statements.
Forensic accounting as a tool for fighting financial crime in nigeriaAlexander Decker
This document discusses forensic accounting and its potential use as a tool to fight financial crimes in Nigeria. It defines forensic accounting as the application of accounting skills and techniques to legal issues. Forensic accountants look beyond financial statements and audit trails to examine the substance of transactions. They can help gather evidence of economic crimes in a way that is suitable for use in court. The document recommends that anti-corruption agencies in Nigeria consider engaging forensic accountants to strengthen evidence and improve conviction rates for fraud offenders.
Mike Rosten gave a presentation on forensic accounting. He discussed his credentials and experience in forensic accounting since 1998. He outlined typical forensic accounting assignments like fraud investigations, evaluating insurance claims, and analyzing bankruptcy cases. Forensic accountants reconstruct financial transactions, identify anomalies, quantify damages, and may testify in court. Their work requires skills in accounting, investigation, communication, and analyzing financial records from various sources to determine what happened and who is responsible. Forensic accounting differs from auditing in its investigative focus on confirming or refuting specific allegations rather than providing an opinion on general financial statements.
HomeworkPlease read the following note on fraud to broaden your .docxadampcarr67227
Homework
Please read the following note on fraud to broaden your understanding of the topic and to guide your responses. [More guide]
Fraud
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb). As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities). Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a driver’s license by way of false statements made in an application for the same (Nigrini 2011).
Financial Statement Fraud
Financial statement fraud is one of the biggest challenges in the modern business world. This is when corporations engage in certain practices designed to hide or maneuver the accounts of a corporation to help it continue to remain attractive to investors. To counter financial statement frauds, especially in the aftermath of the Enron scandal in 2001-2002, the US Congress introduced the Sarbanes Oxley Act, the compliance with which is mandatory for US corporations. A financial statement fraud may be actionable under both the False Claims Act and the Dodd Frank Act as well. You may have suffered a financial statement fraud or may have original information about a financial statement fraud, which means that you may be able to bring either a financial statement fraud lawsuit or a whistleblower lawsuit depending on the facts peculiar to your case.
The most common occurrence of financial statement fraud is when losses are underplayed or deliberately hidden by corporations. Financial statement fraud comprises deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors, outright falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions, material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared, deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions and also intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.
There are massive issues that emanate from financial statement fraud. Financial statement fraud undermines the reliability, quality, transparency, and integrity of the financial reporting process and jeopardizes the integrity and objectivity of the auditing profession, especially auditors .
Homework guidePlease read the following note on fraud to broaden.docxadampcarr67227
Homework guide
Please read the following note on fraud to broaden your understanding of the topic and to guide your responses. [More guide]
Fraud
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb). As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities). Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a driver’s license by way of false statements made in an application for the same (Nigrini 2011).
Financial Statement Fraud
Financial statement fraud is one of the biggest challenges in the modern business world. This is when corporations engage in certain practices designed to hide or maneuver the accounts of a corporation to help it continue to remain attractive to investors. To counter financial statement frauds, especially in the aftermath of the Enron scandal in 2001-2002, the US Congress introduced the Sarbanes Oxley Act, the compliance with which is mandatory for US corporations. A financial statement fraud may be actionable under both the False Claims Act and the Dodd Frank Act as well. You may have suffered a financial statement fraud or may have original information about a financial statement fraud, which means that you may be able to bring either a financial statement fraud lawsuit or a whistleblower lawsuit depending on the facts peculiar to your case.
The most common occurrence of financial statement fraud is when losses are underplayed or deliberately hidden by corporations. Financial statement fraud comprises deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors, outright falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions, material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared, deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions and also intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.
There are massive issues that emanate from financial statement fraud. Financial statement fraud undermines the reliability, quality, transparency, and integrity of the financial reporting process and jeopardizes the integrity and objectivity of the auditing profession, especially aud.
Forensic Accounting Examination in a Minority Shareholder Oppression CaseCBIZ, Inc.
Minority shareholder oppression cases often require a forensic accounting examination to document issues of oppression. Forensic accountants analyze company books, records, tax returns and conduct interviews to uncover patterns of behavior that contribute to oppression such as excessive compensation to controlling shareholders or restricting dividend payments. A valuation expert also typically calculates the fair value of the company since the controlling shareholders often try to buy back stock from minority owners at depressed prices below fair market value.
The document provides details about a case study on forensic audit. It discusses what forensic audit is, types of fraud, the fraud triangle model, and the Satyam fraud case. The Satyam case involved falsified financial statements, inflated revenues and profits, fake bank balances and fixed deposits totaling Rs. 7,800 crores. Weak internal controls and governance failures at Satyam such as unethical conduct, false books, dubious roles of directors, auditors and banks allowed the fraud to occur and go undetected for years.
This document provides biographies of the authors of a book on internal audit and fraud prevention. It introduces John Milner, Martin Ghirardotti, Enrique Pastor, and Miguel del Olmo, who have extensive experience in fields including internal audit, risk evaluation, fraud prevention and detection, and corporate governance. They have worked with companies and organizations in countries like Ireland, Argentina, Mexico, the United States, South Africa, and throughout Latin America. The document establishes the authors' expertise on the topic which will be covered in the book.
This document discusses forensic accounting. It defines forensic accounting as integrating accounting, auditing, and investigative skills, especially for use in potential court cases. Forensic accountants conduct examinations of financial statements using investigative and auditing techniques. They may provide expert advice in court or help companies improve internal controls. The document outlines the techniques, skills, and stages of forensic accounting assignments, including planning, evidence collection, analysis, and reporting. It also discusses the ethical principles and types of cases forensic accountants may work on.
The impact of forensic accounting on fraud detectionAlexander Decker
This document summarizes a research study that examined the impact of forensic accounting on fraud detection in Nigerian firms. The study aimed to determine the relationship between fraud detection and forensic accounting. It reviewed definitions and types of forensic accounting and fraud. Data was collected through questionnaires administered to 15 firms and analyzed using descriptive statistics and regression analysis. The study revealed that the application of forensic accounting services affects the level of fraudulent activities in firms. It concluded that forensic accounting can help curb fraud in companies.
Discover the 4 most common types of forensic accounting investigation and what you need to know before hiring a forensic accounting investigator for your case.
The document discusses Phar-Mor, a company that engaged in accounting fraud to disguise losses and maintain the appearance of success between 1985 and 1992. It provides a framework for detecting financial statement fraud using a "fraud exposure rectangle" examining management, relationships, organization/industry, and financial results. Strategic reasoning considers how fraud perpetrators may conceal fraud and how auditors can modify typical tests to detect concealed schemes.
This document discusses forensic accounting, including what forensic accountants do and the typical process they follow. It defines forensic accounting as utilizing accounting, auditing, and investigative skills to identify, interpret, and communicate evidence from financial transactions and events, especially for actual or anticipated legal disputes. It describes that forensic accountants perform investigations and analyses of complex financial issues to assist with litigation, insurance claims, fraud investigations, and other legal matters. The typical process involves meeting with clients, collecting relevant evidence, analyzing the evidence, preparing a report, and presenting findings.
Forensic accounting is the application of accounting principles, theories and techniques to facts or hypotheses at issue in a legal dispute and encompasses every phase of litigation services. A forensic accountant uses accounting, auditing and investigative skills to assist in legal matters. This document provides an overview of forensic accounting and forensic auditing, including definitions, the differences between statutory and forensic audits, the approaches and techniques used in forensic audits and the functions of a forensic auditor.
Forensic Accounting – How To Uncover Fraud Jan 2012Hermerding
Richard Hermerding provides an overview of forensic accounting and how it can help uncover fraud. He discusses his qualifications and experience in forensic accounting. The document then discusses the seriousness of fraud based on surveys, who typically commits fraud, common fraud schemes, and warning signs. It provides examples of how forensic accounting techniques like document review, interviews, and financial transaction analysis can be used to detect financial statement fraud and other frauds.
This document discusses fraud and error in an audit of financial statements. It defines fraud and its characteristics, describing fraudulent financial reporting and misappropriation of assets. It outlines risk factors for fraud related to misstatements in financial reporting and asset misappropriation. It discusses the auditor's responsibility to consider fraud, including assessing risks of material misstatement due to fraud and designing audit procedures to detect such misstatements. It also describes reporting and documentation requirements when fraud or errors are suspected.
Forensic audit involves a thorough examination of financial records and transactions to detect and investigate fraud, embezzlement, and other illegal activities. The goal is to determine if fraud has occurred and identify those responsible. Forensic auditing techniques include critical point auditing to identify unusual credit or debit transactions, and propriety auditing to examine if expenditures were necessary. Forensic audits require skills in understanding a company's business and legal environment, using computerized audit procedures, and taking a skeptical approach compared to traditional audits. Forensic auditors must thoroughly examine all records and documentation to substantiate any findings of fraud.
This document discusses forensic accounting and its role in combating fraud. It begins by providing statistics on the scale of fraud in India. It then introduces forensic accounting as applying accounting skills to investigate potential economic crimes. The document outlines the objectives and methodology of the study. It discusses the need for forensic accountants in India given the scale of fraud losses. The role of forensic accountants in investigating financial statements, advising lawyers, and testifying in court is described. The conclusion is that forensic accounting is an effective tool against corporate fraud and malpractice.
This document provides an overview of business risk, control systems, and risk of fraud at Bison Hospitality Ltd. It discusses components of business risk and how internal control systems aim to ensure reliability of financial information, effective operations, and compliance. However, all internal controls have limitations from human error, breakdowns, management override, and collusion. The document assesses the level of risk at Bison Hospitality Ltd. as being at a maximum due to high risk of material misstatement and ineffective internal controls. It provides some pictures and descriptions of Bison Hospitality Ltd.'s control systems and recommends further tests to assess controls and potential fraud.
This document provides an overview of auditing, including:
- The objectives and evolution of auditing from detecting errors and frauds to ascertaining if accounts are true and fair.
- Key definitions including that auditing is a systematic and independent examination of data, statements, records, operations and performance for a stated purpose.
- The features and objectives of auditing including verifying financial statements exhibit a true and fair view, and expressing an opinion on the statements.
Forensic accounting as a tool for fighting financial crime in nigeriaAlexander Decker
This document discusses forensic accounting and its potential use as a tool to fight financial crimes in Nigeria. It defines forensic accounting as the application of accounting skills and techniques to legal issues. Forensic accountants look beyond financial statements and audit trails to examine the substance of transactions. They can help gather evidence of economic crimes in a way that is suitable for use in court. The document recommends that anti-corruption agencies in Nigeria consider engaging forensic accountants to strengthen evidence and improve conviction rates for fraud offenders.
Mike Rosten gave a presentation on forensic accounting. He discussed his credentials and experience in forensic accounting since 1998. He outlined typical forensic accounting assignments like fraud investigations, evaluating insurance claims, and analyzing bankruptcy cases. Forensic accountants reconstruct financial transactions, identify anomalies, quantify damages, and may testify in court. Their work requires skills in accounting, investigation, communication, and analyzing financial records from various sources to determine what happened and who is responsible. Forensic accounting differs from auditing in its investigative focus on confirming or refuting specific allegations rather than providing an opinion on general financial statements.
HomeworkPlease read the following note on fraud to broaden your .docxadampcarr67227
Homework
Please read the following note on fraud to broaden your understanding of the topic and to guide your responses. [More guide]
Fraud
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb). As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities). Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a driver’s license by way of false statements made in an application for the same (Nigrini 2011).
Financial Statement Fraud
Financial statement fraud is one of the biggest challenges in the modern business world. This is when corporations engage in certain practices designed to hide or maneuver the accounts of a corporation to help it continue to remain attractive to investors. To counter financial statement frauds, especially in the aftermath of the Enron scandal in 2001-2002, the US Congress introduced the Sarbanes Oxley Act, the compliance with which is mandatory for US corporations. A financial statement fraud may be actionable under both the False Claims Act and the Dodd Frank Act as well. You may have suffered a financial statement fraud or may have original information about a financial statement fraud, which means that you may be able to bring either a financial statement fraud lawsuit or a whistleblower lawsuit depending on the facts peculiar to your case.
The most common occurrence of financial statement fraud is when losses are underplayed or deliberately hidden by corporations. Financial statement fraud comprises deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors, outright falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions, material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared, deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions and also intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.
There are massive issues that emanate from financial statement fraud. Financial statement fraud undermines the reliability, quality, transparency, and integrity of the financial reporting process and jeopardizes the integrity and objectivity of the auditing profession, especially auditors .
Homework guidePlease read the following note on fraud to broaden.docxadampcarr67227
Homework guide
Please read the following note on fraud to broaden your understanding of the topic and to guide your responses. [More guide]
Fraud
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb). As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities). Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a driver’s license by way of false statements made in an application for the same (Nigrini 2011).
Financial Statement Fraud
Financial statement fraud is one of the biggest challenges in the modern business world. This is when corporations engage in certain practices designed to hide or maneuver the accounts of a corporation to help it continue to remain attractive to investors. To counter financial statement frauds, especially in the aftermath of the Enron scandal in 2001-2002, the US Congress introduced the Sarbanes Oxley Act, the compliance with which is mandatory for US corporations. A financial statement fraud may be actionable under both the False Claims Act and the Dodd Frank Act as well. You may have suffered a financial statement fraud or may have original information about a financial statement fraud, which means that you may be able to bring either a financial statement fraud lawsuit or a whistleblower lawsuit depending on the facts peculiar to your case.
The most common occurrence of financial statement fraud is when losses are underplayed or deliberately hidden by corporations. Financial statement fraud comprises deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors, outright falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions, material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared, deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions and also intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.
There are massive issues that emanate from financial statement fraud. Financial statement fraud undermines the reliability, quality, transparency, and integrity of the financial reporting process and jeopardizes the integrity and objectivity of the auditing profession, especially aud.
This document provides an overview of creative accounting, tax fraud, and financial fraud, and explores using neural networks to detect fraud. It defines creative accounting as the deliberate manipulation of financial statements through legal or illegal means. Tax fraud involves intentionally underreporting taxes through offshore accounts, corporate fraud, or employer fraud. Financial fraud includes management fraud by executives, staff fraud, and leadership fraud. Neural networks, composed of interconnected nodes in layers, can be trained on past consumer credit card usage patterns to detect anomalous transactions that indicate potential fraud.
The document discusses the concept of earnings management and whether it is good or bad. It defines earnings management as when managers manipulate financial statements to present a more favorable view of company performance rather than the actual results. Managers have incentives like bonus plans, debt covenants, and avoiding losses to engage in earnings management. While it allows some flexibility, earnings management can mislead investors and hinder resource allocation if overused. The document reviews literature on identifying earnings management and calls for stronger auditing standards to improve detection of fraudulent financial reporting.
This document provides an abstract for a literature review on the role of internal corporate governance mechanisms and their impact on financial reporting quality. It discusses how agency theory and institutional theory provide frameworks for understanding how governance mechanisms can enhance or reduce earnings management practices. The review aims to analyze the role of boards of directors in financial statement presentation and how earnings management impacts statement quality and stakeholder perceptions. It also summarizes literature on various earnings management measurement models and the relationship between governance mechanisms and earnings manipulation.
Assessment of Tone at the TopA C C O U N T I N G & A U D .docxdavezstarr61655
Assessment of Tone at the Top
A C C O U N T I N G & A U D I T I N G
a u d i t i n g
JUNE 2015 / THE CPA JOURNAL50
By Susan S. Lightle, Bud Baker, and Joseph F. Castellano
The Psychology of Control Risk Assessment
Standards require that auditors assess an entity’s internal controls over financial reporting (ICFR), includ-
ing the control environment, which is influenced by the tone set by management and the board regarding
the importance of ICFR and the expected standards of employee conduct. This article argues that auditors
cannot assess the tone at the top by simply checking off a list of control mechanisms; they must understand
what motivates behavior within the organization (what might be called the psychology of control risk assess-
ment). It also illustrates a model to help auditors anticipate when an organization is prone to earnings
manipulation, and suggests how to assess the tone at the top of an organization.
In Brief
JUNE 2015 / THE CPA JOURNAL 51
I
n the late 1960s and early 1970s, the
U.S.-based energy conglomerate ITT
put together a remarkable string of
earnings increases under the leadership
of Harold Geneen: ITT increased its net
earnings each and every quarter, for 58
consecutive quarters, or more than 14 years
of Geneen’s 18-year tenure. Geneen was
lionized for this achievement; he became
the highest paid executive in the United
States, authored best-selling books, and was
memorialized across the country in the
form of new centers, buildings, and foun-
dations (Harvey D. Shapiro, “Management
Was the Message,” New York Times,
March 10, 1985, http://www.nytimes.
com/1985/03/10/books/management-was-
the-message.html). Only in retrospect, after
Geneen’s departure and the subsequent dis-
mantling of most of ITT, did it become
clear that those 58 straight quarters of
growth were not what they seemed to be.
The Price of Success
Earnings management—a benign
euphemism for financial manipulation—
is not a wholly irrational activity, albeit
an unethical one. In addition to the praise
heaped upon high flyers like ITT under
Geneen, researchers have demonstrated that
companies reporting 20 consecutive quar-
ters of earnings increases enjoy greater
profitability, higher stock valuations, and
higher price-earnings ratios than counter-
parts with similar underlying financial
strength (James N. Myers, Linda A. Myers,
Douglas J. Skinner, “Earnings Momentum
and Earnings Management,” August 2006,
http://ssrn.com/abstract=741244 or
http://dx.doi.org/10.2139/ssrn.741244).
But Myers, et al., also showed that this
“success” comes with a price: All those
previously positive measures decline
markedly when the unbroken sequence of
quarterly successes finally ends; the longer
the quarterly streak of good news runs, the
deeper the firm’s plunge when the time
of reckoning arrives. Efforts to manipu-
late earnings are practiced by widely dis-
parate companies and CEOs, whether lit-
tle known or famous; publicly regarded
as miscreants or su.
Assessment of Tone at the TopA C C O U N T I N G & A U D .docxfredharris32
Assessment of Tone at the Top
A C C O U N T I N G & A U D I T I N G
a u d i t i n g
JUNE 2015 / THE CPA JOURNAL50
By Susan S. Lightle, Bud Baker, and Joseph F. Castellano
The Psychology of Control Risk Assessment
Standards require that auditors assess an entity’s internal controls over financial reporting (ICFR), includ-
ing the control environment, which is influenced by the tone set by management and the board regarding
the importance of ICFR and the expected standards of employee conduct. This article argues that auditors
cannot assess the tone at the top by simply checking off a list of control mechanisms; they must understand
what motivates behavior within the organization (what might be called the psychology of control risk assess-
ment). It also illustrates a model to help auditors anticipate when an organization is prone to earnings
manipulation, and suggests how to assess the tone at the top of an organization.
In Brief
JUNE 2015 / THE CPA JOURNAL 51
I
n the late 1960s and early 1970s, the
U.S.-based energy conglomerate ITT
put together a remarkable string of
earnings increases under the leadership
of Harold Geneen: ITT increased its net
earnings each and every quarter, for 58
consecutive quarters, or more than 14 years
of Geneen’s 18-year tenure. Geneen was
lionized for this achievement; he became
the highest paid executive in the United
States, authored best-selling books, and was
memorialized across the country in the
form of new centers, buildings, and foun-
dations (Harvey D. Shapiro, “Management
Was the Message,” New York Times,
March 10, 1985, http://www.nytimes.
com/1985/03/10/books/management-was-
the-message.html). Only in retrospect, after
Geneen’s departure and the subsequent dis-
mantling of most of ITT, did it become
clear that those 58 straight quarters of
growth were not what they seemed to be.
The Price of Success
Earnings management—a benign
euphemism for financial manipulation—
is not a wholly irrational activity, albeit
an unethical one. In addition to the praise
heaped upon high flyers like ITT under
Geneen, researchers have demonstrated that
companies reporting 20 consecutive quar-
ters of earnings increases enjoy greater
profitability, higher stock valuations, and
higher price-earnings ratios than counter-
parts with similar underlying financial
strength (James N. Myers, Linda A. Myers,
Douglas J. Skinner, “Earnings Momentum
and Earnings Management,” August 2006,
http://ssrn.com/abstract=741244 or
http://dx.doi.org/10.2139/ssrn.741244).
But Myers, et al., also showed that this
“success” comes with a price: All those
previously positive measures decline
markedly when the unbroken sequence of
quarterly successes finally ends; the longer
the quarterly streak of good news runs, the
deeper the firm’s plunge when the time
of reckoning arrives. Efforts to manipu-
late earnings are practiced by widely dis-
parate companies and CEOs, whether lit-
tle known or famous; publicly regarded
as miscreants or su ...
This study examines the role of fraud risk factors in the fraud pentagon theory in detecting fraudulent financial statements. The study analyzed 28 Indonesian banking companies from 2017-2019 using secondary data and the SEM-PLS method. The results found that external pressure, influence monitoring, auditor switching, director changes, and CEO picture frequency simultaneously influence fraudulent financial statement detection. However, individually, external pressure, auditor switching, influence monitoring, and director changes significantly influence detection, while CEO picture frequency does not. The study aims to help companies improve accountability and transparency and help investors conduct more diligent due diligence when evaluating potential investments.
EFFECTS OF ETHICS ON FRAUD 1
EFFECTS OF ETHICS ON FRAUD 2
Ethical Analysis
Effects of ethical behaviors in an economy are far reaching to individuals, firms and the economy at large. Accountants play a vital role in ensuring the reliability and trustworthiness of accounting data and affect the moral culture of business and society. In order to achieve this, accountants are advised to observe the American Institute of Certified Public Accountants (AICPA), Professional Code of Conduct. Undoubtedly, private and public organizations employ professional accountants who are mandated to provide financial information regarding its business cycles. In some situations, an accountant may feel compelled or pressured to provide false financial information or alter financial results. In these cases, this creates a threat to the moral and ethical character of an accountant and is known as an ethical dilemma. Ethical dilemmas constitute a circumstance in which an individual faces a situation or a decision that test his/her moral system or ethical code. In these circumstances, an individual must choose whether to live out consistent moral attitudes or act contrary to what one personally believes or what has been established by ethical code. Ethical accounting codes require accountants to have a high level of integrity, to maintain confidentiality and behave according to a high degree of professional standards.
This dissertation will discuss how ethical accounting standards impact accounting fraud. Accounting fraud involves the intentional manipulation of financial information, which misleads shareholders, creditors, investors and the general public. These actions are premeditated attempts to deceive and attract investors by intentionally altering financial statements. Often, this is accomplished by overstating revenue and assets and under reporting expenses and liabilities. The perpetrators of accounting fraud are employees, managers, accountants and top executives. Thus, to reduce business fraud, ethical codes have been instituted within corporations, industries and state and national accounting boards. For certified public accountants, the AICPA Code of Professional Conduct has been adopted to tackle the ethics of accounting.
Professional Conduct Diminishes Fraud
An accountant’s professional conduct is a key quality used to minimize fraud. As mentioned, state accountancy boards and the AICPA are mandated to formulate and enforce professional standards for all accounting members who are responsible for providing financial services. The AICPA Code of Professional Conduct was recodified in June 2014, and became fully effective in December 2015. This code of conduct requires all accountants to act with integrity, due care, objectivity, competency and ensure confidentiality for their client. In ad.
Accounting Flexibility and Earnings Management: Evidence from Quoted Real Sec...QUESTJOURNAL
Abstract: We ascertain the extent to which management use of accounting flexibility (estimates, fair values and judgment and discretion) are associated with earnings management by listed companies in Nigeria. Based on the study objectives, an ex post facto descriptive design was adopted; descriptive statistics, multiple linear regressions and independent t-tests were used to analyse data and ascertain the association of accounting flexibility elements with the absolute discretionary accrual values (used as proxy for earnings management). The study found that there is a positive significant relationship between the use of estimates and earnings management. The relationship between judgment and discretion in the annual reports was found to be insignificantly positive with earnings management. It was also found that there was inverse insignificant relationship between the use of fair values and earnings management. The study concluded that flexibility in accounting exists because circumstances and conditions across companies and industries vary. It is recommended therefore, that corporate regulators continue to ensure that every reporting entity fully discloses the critical estimates and judgments (including fair value estimations) that underlie its financial reporting. This is absolutely necessary if users are to assess how flexibility in accounting has been invoked in the published financial statements
The document discusses the responsibilities of management and auditors with respect to financial reporting, fraud, errors, and non-compliance. It notes that management is responsible for fair financial reporting and internal controls, while auditors are responsible for detecting material misstatements through reasonable assurance. Misstatements may arise from errors, fraud, or non-compliance with laws and regulations. The document further explores the types of fraud and errors, risk factors, and the auditor's responsibilities in the planning, testing, and completion phases of the audit.
Financial audits reasons behind failures & some suggestionsKumar Indra Mohan
Auditing involves the independent examination of an entity's financial information to express an opinion on whether its financial statements are fairly presented. A financial audit provides an opinion on whether the financial statements comply with accounting standards. Auditors gather evidence to determine if the statements contain material errors or misstatements. Auditing helps detect and prevent fraud, assess taxes, maintain proper accounts, compare performance year-over-year, and increase an organization's credibility and goodwill. However, auditing has limitations such as not all transactions can be verified and it cannot ensure future profitability or management efficiency.
Accounting scandals and frauds are perennial; they have occurred in all eras, in all countries and affected millions of corporations. Unfortunately, there are few loopholes in accounting and auditing standards, which provide leeway and thus motivate accounting professionals to use aggressively manipulation practices. In fact, accounting manipulation (AM) involves the intentional cooking-up of financial records towards a pre-determined target. Every company indeed maneuvers the numbers, to a certain extent, as formally reported in its financial statements (FS) to achieve budgetary targets and generously reward senior managers. From Enron, WorldCom to Satyam, it appeared that window-dressing leading to AM is a serious problem that is increasing both in its frequency and severity, which undermines the integrity of financial reports and eroded investors’ confidence. The responsibility of preventing, detecting and investigating financial frauds rests squarely on Board of Directors and they should adopt preventive steps. Despite the raft of CG, and financial disclosure reforms, corporate accounting still remains murky and companies continue to find ways to play ‘hide-and-seek’ game with the system. Satyam computers were once the crown jewel of Indian IT-industry but were brought to the ground by its founders in 2009 as a result of financial manipulations in FS. The present study provides a snapshot of how Mr. Raju (CEO and Chairman) mastermind this maze of AM practices? Undoubtedly, Satyam scam is illegal and unethical in which computers were cleverly used to manipulate account books by creating fake invoices, inflating revenues, falsifying the cash and bank balances, showing non-existent interest on fixed deposits, showing ghost employees, and so on. Satyam fraud has shattered the dreams of investors, shocked the government and regulators and led to questioning of the accounting practices of auditors and CG norms in India. Finally, we recommend that “All types of AM practices should be legally recognized as a serious crime, and accounting bodies, law courts and regulatory authorities must adopt exemplary punitive measures to prevent such unethical practices.”
1. The fair value option allows entities to measure eligible financial assets and liabilities at fair value on the balance sheet.
2. One advantage of fair value accounting is that it provides users with an accurate valuation of assets and liabilities. However, it also allows some manipulation through selective asset sales.
3. Accounting standards aim to provide useful and reliable information to users, but there is debate around whether fair value or historical cost accounting better achieves this goal. Factors like relevance and reliability must be considered.
Fraudulent financial reporting generally involves the recording of f.pdfanandshingavi23
Fraudulent financial reporting generally involves the recording of fraudulent journal entries,
particularly those involving post-closing adjustments and other types of nonstandard journal
entries.Auditors’ responsibility with respect to fraud, as presented in AU Section 316,
Consideration of Fraud in a Financial Statement Audit, requires auditors to presume that the risk
of management override of controls is always present and to test journal entries and other
adjustments for indications of possible material misstatements due to fraud.
Describes fraud and its characteristics.
SAS 99 defines fraud as an intentional act that results in a material misstatement that are done
financial statements. There are two types of fraud considered: misstatements arising from
fraudulent financial reporting and misstatements arising from misappropriation of assets . The
standard describes the fraud triangle. Generally, the three ‘fraud triangle’ conditions are present
when fraud occurs. First, there is an incentive or pressure that provides a reason to commit fraud.
Second, there is an opportunity for fraud to be perpetrated (e.g. absence of controls, ineffective
controls, or the ability of management to override controls.) Third, the individuals committing
the fraud possess an attitude that enables them to rationalize the fraud.
Requires sessions to discuss how and where the entity’s financial statements might be
susceptible to material misstatement due to fraud.
This requirement is a new concept in audit standards and it has two primary objectives. The first
objective is so the engagement team will have an opportunity for the seasoned team members to
share their experiences with the client and how a fraud might be perpetrated and concealed. The
second objective is to set the proper “tone at the top” for conducting the engagement. The
brainstorming session is to be conducted in a manner that models the proper degree of
professional skepticism and sets the culture for the entire audit.
The following steps involved in testing journal entries and other adjustments are addressed in
this Practice Aid and generally occur in the following order:
Step 1: Consider the risks of material misstatement due to fraud identified in planning the
engagement and their effect on the nature and extent of journal entry testing.
Step 2: Obtain an understanding of the entity’s financial reporting processes and the controls
over journal entries and other adjustments.
Step 3: Perform audit procedures to determine the completeness of the population of journal
entries and other adjustments.
Step 4: Identify and select journal entries and other adjustments for testing.
Step 5: Perform journal entry audit procedures, gather sufficient evidence, and document results.
The auditor should gather information necessary to identify risks of material misstatement due to
fraud by the following
SAS 99 requires auditors to ask management questions about their awareness and understanding
of fraud. Au.
SAS 99 outlines key procedures auditors must take to address fraud risk, including fraud risk discussions, risk identification, risk assessment, evaluation of evidence, and documentation. It defines two types of fraud and lists common risk factors. Small businesses are disproportionately affected by fraud due to lack of controls, and asset misappropriation is the most common type of fraud.
ethical issues in Advanced Auditing and Accountingamiranaguib121
This chapter discusses ethical issues in accounting. It provides an overview of fraudulent financial reporting and significant events that led to the establishment of ethical standards, including the Equity Funding fraud and recommendations from the Treadway Commission. It also analyzes and compares the ethical standards of the IMA, FEI, and AICPA, noting both similarities and differences in their treatment of topics like conflicts of interest.
Similar to Accounting frauds a review of literature (20)
Ibiamke et al. (2016) the effect of performance auditNicholas Adzor
This document discusses a study on the effect of performance auditing on the implementation of Nigeria's Fadama II agricultural development project. It provides background on performance auditing and the Fadama II project. The study found that (1) performance audits provide measurable benefits to the Fadama II project by evaluating its economy, efficiency and effectiveness, and (2) performance audits help the Fadama II project achieve its goals. The document recommends that performance audits be conducted for all government programs and projects to improve oversight and prevent misuse of funds.
Ibiamke & ajekwe (2017) comparative value relevance between ifrs and nsasNicholas Adzor
This study compared the value relevance of accounting information under IFRS and NGAAP in Nigeria. It sampled 81 Nigerian quoted companies and compared value relevance under the two standards using statistical analysis. The study found that the value relevance of accounting information was higher under IFRS than under NGAAP, indicating that the adoption of IFRS in Nigeria has increased financial reporting quality. It recommends that financial statement users and preparers have confidence in IFRS information and that accounting education incorporate IFRS.
Ibiamke & abanyam (2014) do reputable companies have superior earnings qu...Nicholas Adzor
The document compares the earnings quality of reputable companies to non-reputable companies in Nigeria. It measures corporate reputation using Forbes' 2012 ranking of top West African companies and estimates earnings quality using the modified Jones model. The results of a paired sample t-test did not provide evidence that Nigerian companies with higher reputations had significantly superior earnings quality compared to similar but non-reputable companies. This implies that more in-depth analysis of earnings quality using other measures should be done in addition to corporate reputation before making investment decisions.
Ajekwe et al. 2017 testing the random walk theory in the nigerian stock marketNicholas Adzor
This document analyzes whether stock returns in the Nigerian stock market follow a random walk distribution by testing the weak-form efficiency of the market. The study uses daily return data from 2010 to 2014 of the top 20 most active stocks on the Nigerian Stock Exchange. Autocorrelation and runs tests were performed and found that daily stock returns were randomly distributed, indicating the market is informationally efficient at the weak form level. This means past stock price information cannot be used to consistently earn abnormal returns. The study recommends further efforts to improve the market to attract more domestic and foreign investment.
Ajekwe & ibiamke 2017 the association between audit quality and earnings ...Nicholas Adzor
This study examines the association between audit quality and earnings management among listed firms in Nigeria. The study measures audit quality based on auditor size (Big 4 vs non-Big 4) and earnings management using absolute discretionary accruals. Prior literature suggests that larger audit firms constrain earnings management more due to greater reputational concerns and audit quality. However, some studies find no significant difference. The study tests the null hypothesis that there is no significant association between reported discretionary accruals and audit quality among Nigerian firms. Financial statement data is obtained for 79 listed real sector firms and an independent sample t-test and Wilcoxon test will be used to analyze the relationship.
Ajekwe & ibiamke 2016 the tiv socio cultural environment and entrepreneur...Nicholas Adzor
This document discusses the Tiv socio-cultural environment and its potential influence on entrepreneurship emergence. It finds that certain Tiv cultural features, such as attitudes towards wealth, authority, work, savings, and education, could inhibit entrepreneurship development or discourage entrepreneurial activity. However, socio-cultural values are changing due to new realities in Nigeria. The document reviews theories on the relationship between culture and entrepreneurship, finding that cultures with individualism, masculinity, low uncertainty avoidance and low power distance tend to be more entrepreneurial. Certain aspects of an entrepreneurial culture are also discussed.
Ibiamke a. 50 years of efficient market hypothesisNicholas Adzor
This document summarizes the benefits and challenges of the Efficient Market Hypothesis (EMH) for accounting research and practice over the past 50 years. Some key benefits identified include influencing the development of accounting standards, providing a framework for capital market research, and its use in client advising and legal cases. However, challenges are also discussed, such as EMH shifting the focus from historical to forward-looking information, which is less reliable and can encourage fraudulent reporting. While EMH has advanced accounting in several ways, it also threatens the profession by questioning the need for rigorous accounting principles and controls.
This document examines the impact of adopting International Financial Reporting Standards (IFRS) on key financial ratios of Nigerian listed firms. It begins by providing background on IFRS and Nigeria's previous accounting standards. It then reviews prior literature examining the effects of standards changes. The study uses a sample of 60 firms to calculate financial ratios under both IFRS and Nigerian GAAP for the first year of IFRS adoption. Gray's index and other statistical tests are used to analyze differences. Preliminary results suggest IFRS adoption negatively impacted ratios, though the changes were not statistically significant.
The simplified electron and muon model, Oscillating Spacetime: The Foundation...RitikBhardwaj56
Discover the Simplified Electron and Muon Model: A New Wave-Based Approach to Understanding Particles delves into a groundbreaking theory that presents electrons and muons as rotating soliton waves within oscillating spacetime. Geared towards students, researchers, and science buffs, this book breaks down complex ideas into simple explanations. It covers topics such as electron waves, temporal dynamics, and the implications of this model on particle physics. With clear illustrations and easy-to-follow explanations, readers will gain a new outlook on the universe's fundamental nature.
Strategies for Effective Upskilling is a presentation by Chinwendu Peace in a Your Skill Boost Masterclass organisation by the Excellence Foundation for South Sudan on 08th and 09th June 2024 from 1 PM to 3 PM on each day.
This presentation was provided by Steph Pollock of The American Psychological Association’s Journals Program, and Damita Snow, of The American Society of Civil Engineers (ASCE), for the initial session of NISO's 2024 Training Series "DEIA in the Scholarly Landscape." Session One: 'Setting Expectations: a DEIA Primer,' was held June 6, 2024.
This presentation includes basic of PCOS their pathology and treatment and also Ayurveda correlation of PCOS and Ayurvedic line of treatment mentioned in classics.
How to Fix the Import Error in the Odoo 17Celine George
An import error occurs when a program fails to import a module or library, disrupting its execution. In languages like Python, this issue arises when the specified module cannot be found or accessed, hindering the program's functionality. Resolving import errors is crucial for maintaining smooth software operation and uninterrupted development processes.
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
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ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
Liberal Approach to the Study of Indian Politics.pdf
Accounting frauds a review of literature
1. IOSR Journal Of Humanities And Social Science (IOSR-JHSS)
Volume 22, Issue 4, Ver. 8 (April 2017) PP 38-47
e-ISSN: 2279-0837, p-ISSN: 2279-0845.
www.iosrjournals.org
DOI: 10.9790/0837-2204083847 www.iosrjournals.org 38 | Page
Accounting Frauds: A Review of Literature
Clement C.M. Ajekwe1*
, Adzor Ibiamke1
1,
Department of Accounting, Benue State University, Makurdi
Abstract: The business community requires transparent corporate reports to ensure that investment decisions
are not based on materially misstated financial statements. This implies that corporate managers, auditors, board
of directors, investors and regulatory agencies urgently need to be able to detect and prevent potential earnings
frauds. The literature review seeks to improve understanding of the fraudulent financial statement anatomy, its
factors, motivations and antecedents- the knowledge of which can improve our detection and prevention ability.
The “fraud triangle” is portrayed as an efficient model for understanding antecedents to fraud. Concurring with
Zahra, Priem and Rasheed (2005), the paper calls for further research to understand the motivational factors of
fraud behaviour as well as adopting forensic accounting techniques to enhance the probability of detecting fraud
in a timely, cost effective manner.
Key Words: Accounting frauds, fraud triangle, financial fraud
I. INTRODUCTION
Publicly traded companies are required to prepare and issue financial statements that fairly reflect their
performance and financial position. While the vast majority of public companies provide financial reports that
are free from material misstatements; fraud continues to exist including the well publicized frauds at Enron and
WorldCom among others. In the literature, two types of accounting frauds are identified: (i) fraud committed by
top management to maintain an illusion of high performance by the company in order to raise capital for their
firms and mislead investors and others (e.g., auditors, board of directors and the general public), and (ii) fraud
committed by top or middle management for personal gain, to earn bonuses and enhanced compensation.
Accounting fraud is an issue of great concern to the business community including: (a) auditors who are
engaged to render an opinion as to whether the financial reports fairly present the company’s financial position
and results of operations in conformity with established standards; (b) board of directors who bear the primary
responsibility for the preparation and content of the financial reports; (c) investors and potential investors; (d)
corporate managers; and (e)the general public, and as a result, regulators, legislators and other public policy
makers. These parties all have an interest in preventing and detecting fraud before investment decisions are
made on materially misstated financial statements. This paper critically analyses literature based on the factors,
motivation and antecedents of fraudulent financial reporting. The overall objective for the review is to improve
understanding of anatomy of fraud, thereby improving the ability to detect fraud.
The structure of the paper is as follows: The definition and distinction between earnings management
and fraud is reviewed in the next section. The fraud triangle, parties commonly involved in financial reporting
fraud as well as the fraud (type and evidence) schemes deployed to perpetrate fraud is reviewed in sections 3 to
5. Then the incentives and motivations for committing fraud, predictors of fraud as well as consequences of
committing financial reporting fraud are reviewed in sections 6 and 7. Consequences of fraud and conclusions
from sections 8 and 9 conclude the paper.
II. DEFINITIONS OF EARNINGS MANAGEMENT AND ACCOUNTING FRAUD
Accounting fraud differs from other frauds in that it is committed usually by management to deceive
financial statement users while misappropriation of assets is committed against an entity, most often by
employees (Guy & Pany, 1997: 4). Accounting fraud is the intentional, material misstatement of financial
statements or financial disclosures or the perpetration of an illegal act that has a material direct effect on the
financial statements or financial disclosure (Beasley, Carcello, Hermanson & Neal, 2010: 7). The classification
of an action as being fraudulent may depend on the motivation behind it (Brennan & Hennessey, 2001:61).
Young (2000) suggests that accounting fraud does not start with dishonesty; rather, it may begin with pressure
to meet financial targets and the fear that failure to meet these targets will be viewed as unforgivable.
Alternatively, the perpetrator of fraud may be driven by dishonesty and personal gain (for example, to protect
bonuses) rather than by pressure from the organization. This resonates with Cressey’s fraud triangle which
identifies three factors: private non-shareable incentives or pressure, contextual opportunities to commit fraud;
2. Accounting Frauds: A Review Of Literature
DOI: 10.9790/0837-2204083847 www.iosrjournals.org 39 | Page
and ability to rationalize fraud. It may start small (KPMG, 2004), in areas which contain ambiguities or allow
alternative ways to record the operations of an entity. For instance, any depreciation method that systematically
and rationally allocates the cost of the asset over its useful life is allowed by accounting standards. Management
may exploit such a flexibility to present a financial picture that meets their financial targets rather than economic
reality of the firm’s transactions. Most accounting fraud schemes involve “earnings management” which does
not always involve outright violations of accounting standards; more often than not, entities manage earnings by
choosing accounting policies that bend the accounting rules to attain earnings targets. Thus the dividing line
between earnings management which does not violate accounting rules/standards and “earnings manipulation”
which amounts to fraudulent accounting is narrow. Next, earnings management is distinguished from fraudulent
accounting.
2.1 Earnings Management and Fraud
Accounting academics often have different perceptions of earnings management than do practitioners
and regulators (Dechow & Skinner (2000). For example, Healy and Wahlen’s (1999:368) widely accepted
definition of earnings management is that: Earnings management occurs when managers use judgment in
financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders
about the underlying economic performance of the company or to influence contractual outcomes that depend
on reported accounting numbers Despite the wide acceptance of this definition, it centres on management intent
to (1) mislead stakeholders about economic performance of the company and (2) influence contractual outcomes
that depend on reported accounting numbers; it is difficult to measure it directly since it cannot be observed
directly. Accounting standards are not meant to be a straight jacket hence management is allowed flexibility of
accounting which is essential to innovation (Levitt, 1998). An unintended consequence of allowing accounting
flexibility is that it gives management the latitude to “manage earnings” by altering its accounting policy to
select those accounting principles that benefit it most (provided it is disclosed). Examples are many and include
the following:
i. Changing depreciation method from an accelerated method to a more conservative straight line method and
vice versa;
ii. Changing the useful lives or the estimates of salvage value of assets;
iii. Determining whether/when assets have become impaired, and are required to be reserved against or written
off.
iv. Determining the appropriate allowance required for uncollectable accounts receivable;
v. Choosing an appropriate method of inventory valuation (FIFO, AVCO or specific identification).
vi. Determining whether a decline in the market value of an investment is temporary, or permanent, and
vii. Estimating the write downs required for investments.
While clear definitions of “earnings management” are difficult to discern from practitioners’ or
regulators’ statements or pronouncements; an extreme form of earnings management, that is, accounting fraud is
well defined (again in terms of management intent) by the National Association of Certified Fraud Examiners,
[NACFE] (1993:12) as follows:
The intentional deliberate, misstatement or omission of material facts, or accounting data, which is
misleading and when considered with all the other information made available would cause the reader to change
or alter his or her judgment or decision. In their speeches and writings, regulators, such as the Securities and
Exchange Commission (SEC), seem to suggest that financial reporting choices that explicitly violate accounting
standards can clearly constitute both fraud and earnings management; while systematic choices made within
accounting standards constitute earnings management. Certain techniques have been identified as clearly not
being within the acceptable parameters of accounting rules. These unacceptable techniques are generally those
that inflate earnings, create an improved financial picture, or conversely, mask a deteriorating financial picture.
The techniques which constitute financial frauds include (1) “big bath” charges, (2) creative acquisition
accounting, (3) “cookie jar” liability reserves, (4) use of materiality to record small but intentional
misstatements in the financial statements and (5) revenue recognition irregularities. The notion that earnings
management can occur within the bounds of accounting standards is consistent with the academic definition
described by Dechow and Skinner (2000); who have distinguished between managerial choices that are
fraudulent and those that comprise aggressive, but acceptable ways in which managers can exercise their
accounting discretion. They make the point that there is a clear conceptual distinction between fraudulent
accounting practices (that clearly demonstrate intent to deceive) and those judgments and estimates that fall
within acceptable practice and which may comprise earnings management depending on managerial intent.
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Figure 1 depicts how Dechow and Skinner (2000) distinguished between earnings management and accounting
fraud.
“Conservative”
Accounting
. WITHIN GAAP
Overly aggressive recognition of provisions and reserves
Over valuation of acquired in-process R&D in purchase
acquisitions
Overstatement of restructuring charges and asset write offs
“Neutral” Earnings Earnings that result from a neutral operation of the process
“Aggressive”/
“Creative”
Accounting
Understatement of the provision for bad debts
Drawing down provisions or reserves in an overly aggressive
manner
“Accounting
Fraud”
VIOLATES GAAP
Recording sales before they are “realizable” recording fictitious
assets, backdating sales invoices, overstating inventory by
recording fictitious inventory
Figure 1: Distinction between Earnings Fraud and Earnings Management
Source: Dechow and Skinners, 2000
III. THE FRAUD TRIANGLE
The conceptual framework for understanding and detecting accounting fraud is the so called “Fraud
Triangle”. According to that framework, three major drivers underlie most corporate frauds: opportunity,
motivation and rationalization. Opportunity implies a control environment with weak internal controls that can
easily by overridden by top management. Motivation relates to individual incentives that put much pressure or
emphasis on performance or external pressure to meet earnings or budget expectations. Finally, rationalization
reflects the ability of individuals who are involved in frauds to adopt an attitude that deflects blame or
responsibility (e.g., “it will not hurt anyone; we are so close to making our numbers” or “I am entitled to it
because I work very hard”).
Hogan, Rezaee, Riley and Velury (2008:16) in their synthesis of accounting fraud literature find that academic
writings largely support the fraud triangle:
1.Pressures to meet analysts forecast, rapid growth, compensation incentives, stock options, the need for
financing and poor performance increase the likelihood of accounting fraud (Bell & Carcello, 2000; Rezaee
2005; Erikson, Hanlon & Maydew 2006)
2.Effective corporate governance, including the board of directors, audit committee, and internal controls, and
also the external auditor, play key roles in reducing the opportunity to commit fraud (Dechow, Sloan &
Sweeney, 1996; Beasley, 1996; Farber, 2005; Abbot, Parker & Peters, 2004). In addition, external auditors
play a role in reducing opportunities to manage earnings or commit fraud (Becker, DeFond, Jiambalvo &
Subramanyam, 1998; Francis, Maydew & Sparks, 1999; Carcellos & Nagy, 2002, 2004; Iyer & Rama, 2004;
Myers, Myers & Omer, 2003).
3.Research is limited in the attitudes and rationalization area.
Carcello and Hermanson (2008) extend the fraud triangle by including a fourth element, the capability
of the potential fraud perpetrator that is cited by Wolfe and Hermanson (2004). By adding the capability to
commit fraud to the model, i.e., expanding the fraud triangle to the fraud diamond, it is recognised that although
an individual may have an incentive to commit the fraud, an opportunity to commit fraud may exist, and the
individual may be able to rationalize the behaviour, fraud will not occur unless the potential perpetrator has the
personal capability (knowledge, skill, position, ability to handle stress etc) to commit the fraud. In other words,
the potential perpetrator has to have the right skills to recognize and exploit a generic fraud opportunity.
IV ACTORS MOST COMMONLY INVOLVED IN ACCOUNTING FRAUD
Beasley et al. (2010) provide a comprehensive analysis of accounting fraud occurrences investigated by
the US SEC between January 1998 and December 2007. That study confirmed that SEC had named the chief
executive officer (CEO) and/or chief finance officer (CFO) for some involvement in 89 percent of the fraud
cases. The question that arises from this situation is this: How are senior executives able to engage in financial
fraud despite the presence of numerous control agents – board of directors (audit committee), internal and
external auditors, etc., whose function it is to prevent those very abuses? How were the CEOs/CFOs able to
override these controls?
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Black (2005:737) argues that CEOs in particular, are in a unique position to shape the firms internal
and external controls. In effect, they are able to control the controllers – internal auditors, external auditors,
board of directors etc. and create an illusion to “mimic a robustly healthy legitimate firm”. CEOs and CFOs are
typically perpetrators of the accounting frauds. They typically devise fraud schemes to minimize the likelihood
of detection. Moreover, as auditors and other outside monitors change their technology to better detect fraud, the
nature of the fraud scheme evolves to minimize the likelihood of detection (Bloomfield, 1997; Newman,
Rhoades & Smith, 1996; Wilks & Zimbelman, 2004). As a result, fraud is difficult to detect, especially for
auditors and outside monitors such as audit committee, investors and regulators. Black (2005:734) also takes
the position that accounting fraud can be seen as a form of “control frauds”… “situations in which those who
control firms or nations see the entity as a means to defraud customers, creditors, shareholders, donors or the
general public”. Accounting fraud, according to Black (2005:736), is an “optimal strategy” for many white-
collar crimes because
It simultaneously produces record (albeit fictional) profits and prevents the recognition of real loses.
This combination reduces the risk of detection and successful prosecution because the CEO can use normal
corporate mechanisms (e.g. pay raises, bonuses, stock options, dividends and appreciation in the value of the
firm’s stock) to convert the creditors funds to his personal use. The blessing by the top tier (Big 4) audit firm of
the financial profits provides “cover” to the CEO against fraud prosecutions that would ever exist were he
simply to embezzle funds. The spurious profits also aid the CEO’s ability to enlist political aid and provide
immense psychic value. From this perspective, the control agents – auditors, board of directors and regulators
– are often allies of corporations who utilize them to “mimic a robustly healthy, legitimate firm”.
Tillman and Indergaard (2007) studied the problem of control overrides in accounting fraud. The study
involved creating a statistical portrait of the phenomenon of accounting fraud with data gleaned from several
key sources:
1.A sample of firms compiled by the US General Accounting Office (GAO) that filed financial statements
restatements in the period 1997-2002. Financial restatements occur when a company, prompted by auditors or
regulators, or voluntarily, revises financial information that was previously reported. Filing financial
restatements is an indication that (a) the firms internal control system is seriously breached or (b)
Management has attempted to mislead readers of the statements (Kinney & McDaniel, 1989; Richardson,
Tuna & Wu, 2002).
2.Class action securities fraud suits filed against those firms in relation to those restatements of earlier filed
financial statements and
3.Documents related to actions taken against those firms by SEC.
Tillman and Indegaard (2007:2 – 3) found that:
At one extreme…organizations like Enron and Fannie Mae, where corruption was widespread and
where directors, internal auditors, and the external auditors all knowingly facilitated the accounting deceptions.
At the other extreme, one finds companies where corruption was limited to a small number of executives-often a
CEO and CFO- who were able to deceive control agents, withholding information, until the damage was done.
In between, one finds cases involving shifting combinations of corporate insiders and outsiders collaborating in,
or acquiescing to schemes to mislead shareholders and regulators. In particular, the study found specific issues
regarding auditors and directors as detailed below:
4.1 Auditors
Of all the control agents surrounding senior managers, one would expect that outside auditors; because
of their professional obligations and because of their independence, would exert one of the most forceful
constraints on senior executives’ ability to file false financial statements. This expectation failed. Accounting
firms that served as auditors for the sample issuing companies constituted 11% of all organizational defendants.
Nearly one out of five (18%) of the audit firms in the sample (N=374) had their auditors named in the class
action suits or SEC actions. Furthermore, during the study period, Tillman and Indergaard (2007) found that
corporate audits were dominated by five (Big-Five) accounting firms; who were the main defendants; 71 out of
the 79 auditor defendants were Big-Five.
There are reasons to believe that in cases where auditors were accused of being involved in deceptive
reporting, the frauds were more complex and more costly. It may be that large scale accounting frauds are
difficult to perpetrate without at least tacit cooperation of auditors. One measure of complexity is the number of
individuals and/or organizations named in the class action suits and SEC actions. In cases where accounting
firms were named in class action suits or SEC actions the mean number of defendants was significantly higher,
in fact more than twice as high (12.5 vs. 5.83), than it was where accounting firms were not named. Likewise,
the median losses to shareholders as measured by changes in the market capitalization, were approximately
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twice as great ($26.09 million vs. $12.5 million) in cases where accounting firms were named as when they
were not.
4.2 Directors
Beasley et al. (2010) identified the board of directors, and particularly its audit committee as
performing a critical role in preventing misrepresentations in financial reporting. Fama and Jensen (1983:315)
argue that the board of directors is the most important source of internal control in a corporation. They argue,
further, that external board members are effective as control agents because the “value of their human capital
depends primarily on their performance as internal decision makers in other organisations and there is
substantial devaluation of human capital when internal decision control breaks down…” By extension, there is
a reputational lose to external board members who allow accounting fraud to occur on their watch and this cost
leads to more material loses, such as removal from their prestigious board positions, or even legal liability.
However, recent findings such as Srinivasan (2006) and Agrawal, Jaffee and Karpoff (1999) raise doubts about
the extent to which “reputational costs” can serve as incentives of board members to closely monitor the actions
of their senior executives.
The doubt is strengthened by the fact that two-fifths (40%) of all firms in the Tillman and Indergaard
(2007) sample, one or more members of the board of directors was named in a class action suit or SEC action.
Most of those mentioned were external directors. Moreover, in nearly 18% of the cases, the Chairman of the
Board was named. These findings suggest that in a large number of cases the board of directors did not fulfil its
control function. One plausible explanation for why so many directors failed to exercise their control is that
many may have been “bought off” with stock options, and even worse, many of those options may have been
illegally back-dated to increase their value. In this scenario, board members turned a blind eye to accounting
improprieties if they themselves were the beneficiaries of illegal, or at least improper, financial schemes.
As with cases where auditing firms were accused in formal actions; in firms where members of the
board were named as defendants, the financial manipulation schemes were more complex and more costly than
at other firms. One explanation for this finding is the simple fact that more complex and more costly frauds
often take place over longer periods of time; and it is difficult to hide the frauds from members of the board of
directors. In these cases, class action suits typically allege that directors either colluded in or were aware of the
misreporting of financial results and did nothing to prevent it.
V. FRAUD SCHEMES
Accounting frauds occur through the fabrication of numbers in the accounts or the misapplication and
wilful misinterpretation of accounting standards (Rezaee, 2002; Spathis, Doumpos & Zopounidis, 2002).
Financial statement frauds are intentionally designed by management to achieve pre-determined financial goals.
Currently, auditing procedures can rarely detect fraud (Albrecht, Albrecht, & Dunn, 2001; Loebbecke, Eining &
Willingham, 1989). It is therefore essentially important that auditors and other stakeholders know the relative
frequencies with which various types of fraud occur (Nelson, Elliot & Tarpley, 2003; Bonner, Palmrose, &
Young, 1998; Smith & Kida, 1991; Heiman, 1990; Libby & Frederick, 1990). With the knowledge of
frequencies and patterns of fraud schemes, auditors, forensics, regulators, investors and academics etc could
better understand the perpetration and concealment process of management fraud which can assist assessment of
the overall fraud risk and the risk associated with various types of fraud schemes. Gao and Srivastava (2008)
analysed fraud cases announced by US SEC in Accounting and Auditing Enforcements Releases (AAERs)
issued between 1997 and 2002; and summarized frequencies of fraud schemes at the level of account schemes
and evidence schemes. Account schemes are defined as those schemes that are relevant to manipulations of
account balances such as revenue recognition on fictitious transactions. Evidence schemes refer to those
schemes that are used by management to create (or hide) evidence in order to conceal account schemes and
deceive auditors. The most frequent evidence schemes used by management to conceal fraud include: fake or
altered documents, collusion with third parties, altered internal documents, hidden documents and/or
information, and management misrepresentation. Furthermore, they (Gao & Srivastava, 2008) observed several
significant relationships among certain types of evidence schemes, account schemes, and company
characteristics. First, the creation of fake documents is strongly related to recognition of fictitious revenues.
Second, the collusion with third parties such as customers and distributors is also related to the recognition of
fictitious revenues. Third, the use of altered internal documents is related to premature revenue recognition.
Fourth, hidden documents/information is/are related to both premature revenue recognition and undervalued
expenses/liabilities. And finally, management representations either in oral or written form is related to the
account scheme of overvalued assets and undervalued expenses.
Besides the relationship between evidence schemes and account schemes Gao and Srivastava (2008)
also found some interesting relationships between evidence schemes and company characteristics. For instance,
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companies in the computer industry (a new economy industry) are more likely to hide documents from auditors.
In particular, side agreements with customers or distributors were hidden from auditors. The altered internal
document scheme was deployed more in annual reports than in quarterly reports. Gao and Srivastavas (2008)
analysis of the relationships among evidence schemes, account schemes and company characteristics could help
the auditor predict evidence schemes used by management to conceal fraud. In addition, the analysis should help
the auditor direct his/her attention to the audit evidence that might have been manipulated to conceal fraud, and
thus help in the design of special procedures in response to potential fraud schemes. Beasley et al. (2010)
identified improper revenue recognition as the most common fraud technique, followed by the overstatement of
existing assets or capitalization of expenses. As Beasley et al. (2010) reported, companies employed a variety of
techniques to improperly recognize revenue including the following: (a) sham sales, (b) conditional sales, (c)
round-tripping or recording loans as sales, (d) bill and hold transactions (e) premature revenues before all the
terms of the sale were completed (f) improper cut-off of sale, (g) improper use of the percentage of completion
method (h) unauthorized shipments and (i) consignment sales.
VI. INCENTIVES/ MOTIVATIONS FOR COMMITTING FRAUD
The Report of the National Commission on Fraudulent Financial Reporting (1987) revealed that
financial reporting fraud usually occurs as the result of certain environmental, institutional or individual forces
and opportunities. These forces and opportunities add pressures and incentives that encourage individuals and
companies to engage in financial reporting fraud. If the right combustible mixture of forces and opportunities is
present financial reporting fraud may occur. A frequent incentive for financial reporting fraud is the desire to
obtain a higher price from a stock or debt offering or to meet the expectations of investors; i.e. capital market
pressures. Several studies have investigated how efforts by senior managers to raise capital at low costs have
resulted in pressure to engage in earnings manipulation (Dechow, Sloan, & Sweeney, 1996, Richardson, Tuna &
Wu 2002). In these cases, managers want to maintain an illusion of high performance by their companies in
order to raise capital for their firms.
One of the clear themes that emerged out of recent accounting scandals has been the way executive
compensation that is tied to a firm’s performance can provide incentives for accounting fraud. This proposition
has been tested in a number of studies, which have generally found support for a notion that firms whose
executives are given performance-based compensation in the form of stock options or bonuses, are much more
likely to file restatements (Kedia, 2003), be subject to actions by SEC (Erickson, Hanlon and Maydew, 2006) or
to be the subject of class action suit (Peng & Roel, 2004).
A related issue has to do with insider trading by senior executives. In a number of highly publicized
cases of accounting fraud, there was evidence that executives sold their stock in their firms ahead of public
release of negative information about the firm’s performance. Summers and Sweeney (1998) examined a sample
of 51 companies that had been identified as being involved in accounting fraud between 1980 and 1987. These
firms were compared to a control sample of non-fraudulent companies. Their analysis provides evidence that
“insiders in companies with fraudulent financial statements reduce their net position in the entity’s stock through
a high level of stock sales activity” (Summers & Sweeney, 1998:132). Similarly, Beneish (1999) focused his
study on the extent to which senior managers at firms accused of earnings management sell their stock in the
firm during the period in which earnings are manipulated. Based on the analysis of 64 firms that were either
accused by the SEC or identified by the media as engaging in earnings manipulation in the period 1987-1993,
Beneish found that compared with the control group of firms not accused of earnings manipulation, managers in
the companies in his sample were much more likely to have sold their stock at inflated prices and exercised
options. Beneish (1999) and Dechow, Sloan and Sweeney, (1996) examine fraud incentives related to debt
covenant hypotheses. In accounting fraud and/or earnings management literature, the debt covenant hypothesis
predicts that when firms are close to violating debts covenants, managers will use income increasing
discretionary accruals to avoid violating the covenants (Dechow & Skinner, 2000). Beneish (1999) and Dechow
et al. (1996) hypothesize a positive relationship between demand for external financing and fraud, and between
incentives related to avoiding debt covenant violations and fraud. Demand for external financing is measured in
both studies as whether the difference between cash flow from operations and average capital expenditure to
current assets is less than – 0.5 and whether securities were issued in the fraud period. Incentives related to
avoiding debt covenant violations are measured in both studies using leverage and actual instances of technical
default. The results of the studies are mixed, with one study (Dechow et al.,1996) finding support for the
hypothesized relationships and the other (Beneish, 1999) finding no support.
Firm performance, and consequently market value, is partially determined by the firms’ ability to meet
or exceed analyst expectations. Managers, therefore, have incentives to manipulate earnings to meet or exceed
analyst forecasts when these forecasts would not otherwise have been met or exceeded (Burgstaher & Eames,
2006). Managers can manipulate earnings to meet or exceed analyst forecasts by managing earnings or by
committing fraud, (Feroz, Park & Pastens, 1991).A number of studies have tested the theory that the
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composition of corporate boards influences the likelihood that the firm will engage in earnings manipulation.
Research by Beasley (1996) and Klein (2002) demonstrates that the more “independent” boards are, as
measured by the proportion of outside directors, the less likely they are to manipulate earnings. A study by
Dechow, Sloan and Sweeney (1996) examined AAERS filed against 92 firms in the period 1982-1992. The
characteristics of these firms were compared to those of a matched sample of firms that were not accused of
earnings manipulation during the same period. It was found that firms accused of manipulating earnings were
(1) more likely to have boards of directors dominated by management and (2) more likely to have a CEO who
simultaneously serves as chairman of the Board (Dechow, Sloan & Sweeney, 1996).
VII. FRAUD PREDICTORS
Companies with a higher risk of commitment of accounting fraud tend to display specific behavioural
characteristics (du Toit, 2008). If this is proved to be the case, such characteristics could be integrated into a
model of characteristics which auditors, managers and other interested parties can be aware of as potential
indicators to assist them in the detection and identification of fraud. Albrecht et al.(2004) identify nine factors
which together create the “perfect fraud storm”: a booming economy (which hides the fraud), moral decay,
misplaced executive incentives, unachievable expectations of the market, pressure of large borrowings, rule-
based accounting standards, opportunistic behaviour of audit firms, greed on the part of a wide variety of groups
of people and educator failures. These nine factors are analyzed by reference to the Cresseys (1953) fraud
triangle of pressure to commit fraud, opportunity to commit fraud and inclination to rationalise fraud. The
authors also examined these factors against agency and stewardship theories. Albrecht et al. (2004) conclude
from their analysis that managers who identify with a stakeholder perspective rather than with an agency theory
perspective are less likely to commit fraud. Loebbecke et al. (1989) designed a fraud prediction model based on
conditions in the entity, manager motivation and manager attitude. Bell and Carcello (2000) used the same fraud
sample as Loebbecke et al. (1989) and contrasted it with non-fraud sample in order to consider the presence or
absence of “red flags” as assessed by auditors. Some organizational factors identified as likely contributors to
financial reporting fraud include; a weak control environment, rapid growth, inadequate or inconsistent
profitability, management placing undue emphasis on meeting earnings forecast, and ownership status (public or
private companies). Beasley et al. (2000) investigated corporate governance differences in a sample of fraud and
non-fraud firms. They found that fraud firms were less likely to have an audit committee. Where one existed in
the fraud firm, it tended to be less diligent and less independent; non-fraud firms had more outside directors on
the audit committee than fraud firms. They also found that internal audit departments were less common in
fraud firms. Prior fraud literature has identified improper revenue recognition and profit inflation as being the
most primary form of accounting fraud (Beasley et al., 2010; KPMG, 2008; Telbergh, 2004; Beneish, 1999).
Given that the revenue account is typically manipulated, unusual revenue levels or changes in revenue might be
indicative of revenue fraud. However, considering that revenue varies from year to year and among firms for
reasons other than fraud, straight revenue is a relatively noisy indicator of fraud. For example, it is very difficult
to disentangle differences in revenue due to fraud from differences in revenue due to the size of the firm and the
successfulness of the firm. To detect revenue fraud, SAS 99 highlights the need to analyze and identify unusual
relationships involving revenue, for example, between revenue and production capacity. Prior research has
included sales in various ratios that are not, typically, designed for the purpose of defecting fraud. Nevertheless,
the results from these studies are largely consistent with fraud firms manipulating the revenue account. For
example, sales growth, used as a proxy for firm growth, has been used as a predictor for fraud based on the idea
that high-growth firms have incentives to sustain their high growth levels and that slow-growth firms have
incentives to increase growth (Erickson et al.,2006; Brazel et al., 2007). The former study (Erickson et al., 2006)
found a positive relationship between sales growth and fraud. Brazel et al. (2007) examined the relationship
between performance improvements and fraud in more detail and found a negative relationship between sales
growth using a non-financial measure and fraud. Together these results indicate that firms that increase revenue
fraudulently are more likely have abnormally high growth rates, and that poor performing firms i.e. firms with
low accrual growth rates, are more likely to commit fraud. Beneish (1999) profiled a sample of earnings
manipulators identifying their distinguishing characteristics, from which a model for detecting manipulation was
estimated. The model’s variables, eight in all, are designed to capture either the effects of manipulation or pre-
conditions that may prompt firms to engage in such activity. The results and empirical evidence suggest a
systematic relation between the probability of manipulation and financial statement variables: The variables
(ratios) are: (i) sales growth index (SGI), (ii) gross margin index (GMI), (iii) asset quality index (AQI), (iv)
day’s sales in receivables index (DSRI), (v) sales to general and administrative expenses index (SGAI). Other
variables (ratios) are (vi) depreciation index (DI), (vii) leverage index (LINDEX) and (viii) total accruals to total
assets (TATA).
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VIII. CONSEQUENCES
The Association of Certified Fraud Examiners (ACFE) (2008) examined 959 cases of occupational
fraud and abuse for the period 2006 – 2008, and finds that fraud is extremely costly especially for small
organizations. The medium fraud loss per organization was $175,000; and more than 25% of the frauds involved
losses exceeded $1million. ACFE (2008) also found that frauds were more likely to be detected by tips (46%)
internal controls (23%), accident (20%), internal audit (19%) and external audit (9%).When financial reporting
fraud occurs, the consequences to investors, the entity itself, other stakeholders and the fraud perpetrators often
are severe. For example, Beasley et al. (2010) found that more than 75% of the fraud firms filed for bankruptcy,
became defunct, experienced a significant abnormal stock price decline or were delisted from a national stock
exchange. They also find that a significant number of company executives were terminated or forced to resign,
and that class action lawsuits and SEC enforcement actions against fraud perpetrators was common.
IX. CONCLUSIONS AND OPPORTUNITIES FOR FUTURE RESEARCH
The review of accounting fraud literature suggests that overall, prior studies among others, examined
the factors, motivations and antecedents of fraud at societal, organizational and individual levels. Others
provided discussion on the fraud triangle and fraud diamond (Wolfe & Hermanson, 2004). The fraud triangle (or
fraud diamond) is portrayed as an efficient model for understanding antecedents to fraud. However, due to the
growing complexity and creativity in financial markets and white collar crimes, some frame works may not fully
capture the antecedents and factors of fraud. For example, there may be new demographic1
, psychological and
sociological antecedents such as managerial hubris (Magnan, Cormier & Lapointe-Antune, 2010), personality
and behavioural characteristics (Gillett & Uden, 2005, Carpenter & Reimers, 2005; Cohen, Ding, Lesage &
Stolowy, 2008); and other psychological factors (Duffied & Grabosky, 2001) to fraud. This paper concurs with
Zahra, Priem, and Rasheed (2005) to suggest further research to understand the motivational factors of fraud
behaviours. Regarding the methodology adopted, most of the studies are based on evidence from the USA in
which SEC Audit and Accounting Enforcement Releases (AAERs), financial restatements of companies at the
General Accounting Office (GAO) and class action suits arising out of SEC actions and financial restatements.
Institutional arrangements and legal frameworks differ around the world. Replication of studies based on
publicly available data as is the case in the USA may not be possible in other countries like Nigeria. Moreover,
results obtained from the studies reviewed may or may not be applicable in another context-outside of the USA.
It may be more practical to employ the case study method which allows us to delve into the rich stories
underlying each instance of accounting fraud- enabling a deeper investigation of the context surrounding each
fraud case. The review also identified a gap for which future research will need to fill: the absence of any link to
the extent to which financial statement auditors could adopt forensic accounting techniques or work with
forensic accountants to enhance the probability of detecting financial reporting fraud in a timely, cost effective
manner, even in the absence of specific fraud allegations.
REFERENCES
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Auditing: A Journal of Practice and Theory, 23 (March): 69–88.
[2] Advisory Committee on the Auditing Profession (ACAP). (2008). Final Report of the Advisory
Committee on the Auditing Profession. Washington, DC: United States Department of the Treasury.
[3] Albrecht, C., Albrecht, W., Dunn, J. (2001). Conducting a Pro-Active Fraud Audit: A Case Study.
Journal of Forensic Accounting, 2, 203-218.
[4] Albrecht, W., Albrecht, C., and Albrecht, C. (2004). Fraud and Corporate Executives: Agency,
Stewardship and Broken Trust. Journal of Forensic Accounting, 5, 109-130.
[5] American Institute of Certified Public Accountants (AICPA). (2002). Statement on Auditing Standards
No. 99: Consideration of Fraud in a Financial Statement Audit. New York, NY: AICPA.
[6] Association of Certified Fraud Examiners (ACFE). (2008). Report to the Nation on Occupational Fraud
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[7] Beasley, M.S. (1996). An Empirical Analysis of the Relation between the Board of Director Composition
and Financial Statement Fraud. The Accounting Review. 71(4):443-465.
1
Tillman and Inderguard (2008:49 -50) cite the changed role and demographics of CFOs from the late 1990s which “had given birth to
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