Financial statement fraud can occur through several common schemes such as overstating revenues by recording fictitious or premature sales, overstating assets like inventory by understating write-downs or overcounting, and understating liabilities by failing to record expenses fully. These manipulations are done purposefully to mislead investors and other stakeholders by misrepresenting the true financial condition and performance of a company. If uncovered, financial statement fraud can result in severe market and economic consequences through loss of investor trust and confidence.
Ethics provides standards for determining right and wrong human behavior based on concepts like rights, obligations, fairness, and virtues. Accounting ethics specifically calls on members to maintain integrity, truthfulness, and honesty when working with financial data and reporting. Upholding accounting ethics helps ensure the accuracy of financial information and protects the interests of investors, businesses, and the public. However, some challenges to accounting ethics include pressures that prioritize short-term gains, complex rules open to interpretation, and rationalizing small ethical issues. When facing an ethical conflict, accountants should follow their organization's policies or confidentially consult impartial advisors to determine the proper course of action.
Ethics provides standards for determining right and wrong human behavior based on concepts like rights, obligations, fairness, and virtues. Accounting ethics requires accuracy and honesty when interpreting financial data to avoid intentionally misleading practices. Upholding ethical standards is important in accounting and finance to maintain integrity, credibility, and trust. Some unethical behaviors include fraud, insider trading, producing false financial statements, delaying payments, and deception. When facing ethical issues, accountants should follow their organization's policies or discuss the matter with an unbiased advisor to find an appropriate resolution.
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.
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 .
(A)Satyam: Key Facts and Unheard AnswersKashyap Shah
The Satyam scam was exposed when Ramalinga Raju confessed in January 2009 to inflating Satyam's accounts through fictitious revenues and profits. The gaps in Satyam's balance sheet had grown too large to cover up further. A whistleblower email also triggered investigations. Regulators and auditors failed to prevent the fraud despite signs of discrepancies. In response, India implemented new corporate governance regulations, including stricter rules for boards, independent directors, auditors, and increased accountability for fraud.
The document summarizes the Satyam accounting scandal that occurred in India in 2009. It describes how the founders of Satyam, an IT consulting firm, inflated profits and falsified financial records through various accounting practices over several years. When the fraud was discovered, it damaged India's reputation in the IT industry and led to reforms aimed at preventing similar incidents in the future. The auditors, PwC, were criticized for failing to detect the fraud earlier despite signs that should have raised concerns.
This book focuses on a ‘detailed-commentary’ and ‘step-by-step approach’ for the Forensic Audit of Financial Transactions. It also deals with each and every aspect of Forensic Audit of various items of statement of Profit & Loss and Balance Sheet.
The Present Publication is the Latest Edition & is updated with all amendments and legal position up to July 2020, authored by G.C. Pipara.
Understanding the Forensic Audit is not complete, without actual Case Analysis and this book includes analysis of actual company cases relating to Forensic Audit, where either fraud or misrepresentation of information is found. With the help of Case Analysis, how to achieve the maximum objective of Forensic Audit, has been explained in a lucid language with step by step approach.
Each part of this book deals with the different segments of the forensic audit and each part has been devised carefully, keeping in mind – ‘Maximum Result’ and with an objective that the real purpose of Forensic Audit is served.
This book deals with –
· Misstatement of information in the financial statement,
· Incorrect details in the financial statement,
· Diversion of funds by an entity,
· Siphoning of Funds by an entity,
· Fraud in some of the transactions undertaken by the entity,
· Fraud in books of accounts and other records,
· Fraud in the balance sheet – one which is even audited,
· Fraud by the auditor in helping the organization to accomplish its intention etc.
The structure of the Book is as follows:
· Part One
Deals with the introduction of the forensic audit and look into the past, present and future of forensic audit. This part is presented to establish the foundation of the book.
· Part Two
Deals with important transactions pertaining to purchases of goods, sales and other major expenditures - which forms part of the statement of profit & loss account. Provisions and contingent liabilities are often used by an entity to cook the books of account and therefore, a separate chapter is presented on this issue.
· Part Three
The various items contained in the balance sheet, are a major part of the activities of any entity and therefore, is a major part of any forensic audit also. Therefore, in this part of the book, the following important activities of an entity’s are covered:
o Fixed (Hard) Assets – hard to spot
o Intangible Assets and Goodwill – neither visible nor real
o Capital Work In Progress (CWIP), Stock In Progress (SIP), and Stock – not seeing the light of day
o Piling Stock and Mounting Debtors – an evergreen technique for every-greening
o Investments – without objectives like a traveler without a destination
o Loans and Advances given – gone with the wind
o Equity and Shareholders – invisible ownership
Learn More
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.
Ethics provides standards for determining right and wrong human behavior based on concepts like rights, obligations, fairness, and virtues. Accounting ethics specifically calls on members to maintain integrity, truthfulness, and honesty when working with financial data and reporting. Upholding accounting ethics helps ensure the accuracy of financial information and protects the interests of investors, businesses, and the public. However, some challenges to accounting ethics include pressures that prioritize short-term gains, complex rules open to interpretation, and rationalizing small ethical issues. When facing an ethical conflict, accountants should follow their organization's policies or confidentially consult impartial advisors to determine the proper course of action.
Ethics provides standards for determining right and wrong human behavior based on concepts like rights, obligations, fairness, and virtues. Accounting ethics requires accuracy and honesty when interpreting financial data to avoid intentionally misleading practices. Upholding ethical standards is important in accounting and finance to maintain integrity, credibility, and trust. Some unethical behaviors include fraud, insider trading, producing false financial statements, delaying payments, and deception. When facing ethical issues, accountants should follow their organization's policies or discuss the matter with an unbiased advisor to find an appropriate resolution.
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.
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 .
(A)Satyam: Key Facts and Unheard AnswersKashyap Shah
The Satyam scam was exposed when Ramalinga Raju confessed in January 2009 to inflating Satyam's accounts through fictitious revenues and profits. The gaps in Satyam's balance sheet had grown too large to cover up further. A whistleblower email also triggered investigations. Regulators and auditors failed to prevent the fraud despite signs of discrepancies. In response, India implemented new corporate governance regulations, including stricter rules for boards, independent directors, auditors, and increased accountability for fraud.
The document summarizes the Satyam accounting scandal that occurred in India in 2009. It describes how the founders of Satyam, an IT consulting firm, inflated profits and falsified financial records through various accounting practices over several years. When the fraud was discovered, it damaged India's reputation in the IT industry and led to reforms aimed at preventing similar incidents in the future. The auditors, PwC, were criticized for failing to detect the fraud earlier despite signs that should have raised concerns.
This book focuses on a ‘detailed-commentary’ and ‘step-by-step approach’ for the Forensic Audit of Financial Transactions. It also deals with each and every aspect of Forensic Audit of various items of statement of Profit & Loss and Balance Sheet.
The Present Publication is the Latest Edition & is updated with all amendments and legal position up to July 2020, authored by G.C. Pipara.
Understanding the Forensic Audit is not complete, without actual Case Analysis and this book includes analysis of actual company cases relating to Forensic Audit, where either fraud or misrepresentation of information is found. With the help of Case Analysis, how to achieve the maximum objective of Forensic Audit, has been explained in a lucid language with step by step approach.
Each part of this book deals with the different segments of the forensic audit and each part has been devised carefully, keeping in mind – ‘Maximum Result’ and with an objective that the real purpose of Forensic Audit is served.
This book deals with –
· Misstatement of information in the financial statement,
· Incorrect details in the financial statement,
· Diversion of funds by an entity,
· Siphoning of Funds by an entity,
· Fraud in some of the transactions undertaken by the entity,
· Fraud in books of accounts and other records,
· Fraud in the balance sheet – one which is even audited,
· Fraud by the auditor in helping the organization to accomplish its intention etc.
The structure of the Book is as follows:
· Part One
Deals with the introduction of the forensic audit and look into the past, present and future of forensic audit. This part is presented to establish the foundation of the book.
· Part Two
Deals with important transactions pertaining to purchases of goods, sales and other major expenditures - which forms part of the statement of profit & loss account. Provisions and contingent liabilities are often used by an entity to cook the books of account and therefore, a separate chapter is presented on this issue.
· Part Three
The various items contained in the balance sheet, are a major part of the activities of any entity and therefore, is a major part of any forensic audit also. Therefore, in this part of the book, the following important activities of an entity’s are covered:
o Fixed (Hard) Assets – hard to spot
o Intangible Assets and Goodwill – neither visible nor real
o Capital Work In Progress (CWIP), Stock In Progress (SIP), and Stock – not seeing the light of day
o Piling Stock and Mounting Debtors – an evergreen technique for every-greening
o Investments – without objectives like a traveler without a destination
o Loans and Advances given – gone with the wind
o Equity and Shareholders – invisible ownership
Learn More
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.
Financial fraud cost $1.9 billion in 2019 according to the FTC, with common types including inflating earnings by extending depreciation periods, hiding debt, recognizing revenue early while delaying expenses, and incorrect capitalization of expenses. Notable fraud cases include Enron, Volkswagen, Lehman Brothers, Wells Fargo, and Bernie Madoff's Ponzi scheme. Cryptocurrencies are also at risk of fraud due to lack of sovereign backing, volatility, and lack of clarity. Companies can prevent fraud by studying governance, auditing thoroughly, monitoring stakeholder relationships, and ensuring performance is consistent with industry peers.
The document discusses the code of ethics for the accountancy profession in Malaysia. It covers several topics: the role of professional accountants and concepts like blind loyalty; types of fraud and white-collar crimes; relevant acts and policies; expectations of accountants regarding integrity, competence and independence; sources of ethical guidance like the IFAC code; and effective implementation of codes of conduct. It also provides a case study scenario involving ethical dilemmas related to financial misrepresentation, conflicts of interest, and suspected fraud at a client organization.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB HAMT
Common mistakes and uncommon losses: Real case studies from the Indian market. This presentation covers the case studies of the companies where the investment went down the drain.
The presentation was delivered at CFA Institute on 7th Mar 2020.
This presentation covers case studies as if we are in that time period and to check if numbers could tell us upcoming problems.
Added 3 new case studies and a quiz
Case study 1: Slide# 37-41
Case study 2: Slide# 42-47
Case study 3: Slide# 48-52
Quiz: Slide# 58
It also covers investing principles to screen stocks, avoid common mistakes backed by several real case studies from the Indian market
Objectives-
Quick screening to avoid major mistakes
What are the parameters that you must see
Sources to get the lists
Case studies covering failures and frauds
Delayed gratification: Most important quality
Linguists and psychologists have developed techniques to identify deceptive language and behavior. Why don’t shareholders use these same techniques to evaluate the truthfulness of management and detect financial manipulation?
This document discusses various ethical issues that can arise in the finance sector. It covers frauds like credit card and check fraud, securities fraud, and computer fraud. It also discusses types of bank frauds such as unauthorized credit extensions and deposit account fraud. Regarding the insurance sector, it identifies three types of fraud and notes fraud can occur during the proposal, contract, or claims stages. It also provides measures to combat fraud in banking like anti-money laundering acts and for insurance like regulation, transparency, and legislation. The document closes by discussing creative accounting, abusive tax shelters, insider trading, and the role of ethics codes.
This document discusses creative accounting and explores why managers engage in it. It notes that while creative accounting is often portrayed negatively, it can actually help companies in difficult times if used properly. An example is given of Pakistani cement companies during an economic downturn that used creative accounting to convert depreciation from a fixed to variable cost, allowing them to report profits and minimize losses. The document examines definitions of creative accounting, motivations for managers to engage in it such as meeting targets or smoothing earnings, and how it can be used to deliberately misrepresent financial information, for example by changing accounting policies or overstating assets. It concludes that while abuse of creative accounting can be harmful, moderate use that follows accounting standards may provide benefits.
This document discusses financial disclosure practices in Pakistan. It provides an introduction to good corporate governance principles of transparency, accountability, fairness and responsibility. It then gives a brief history of corporate governance development in Pakistan, including key acts, regulations and codes issued. The document outlines requirements for financial disclosure in annual reports and reasons for financial disclosure. It discusses advantages such as regulatory compliance, reputation and investor interest, and disadvantages of non-disclosure. It also describes instances of financial fraud in Pakistan such as the PTCL and Crescent Investment Bank scandals.
This document discusses corporate governance in India. It defines corporate governance as ensuring companies are governed in stakeholders' best interests through systems, processes and principles. It outlines key concepts like transparency, compliance and shareholder protection. The history of corporate governance in India is also presented, along with the various laws and committees that have helped shape governance standards over time. Objectives, benefits and key principles of corporate governance are defined.
Accounting fraud involves intentionally manipulating accounting records to misrepresent a company's financial situation. Common types of accounting fraud include overstating revenues or assets and understating expenses. Red flags that could indicate potential accounting fraud include unusual increases in end-of-year revenues, non-matching revenue and cash flow growth, and inconsistent financial reporting. Companies can help prevent fraud by implementing strong internal controls, codes of ethics, and oversight of financial reporting and management compensation.
1. The Satyam case involved a $1.4 billion fraud perpetrated by its founder Ramalinga Raju through falsifying the company's accounts.
2. Raju inflated cash balances, receivables, interest income and profits in financial statements for years, deceiving auditors, investors and regulators.
3. The fraud was exposed when Raju confessed to overstating assets by $1.47 billion and income figures. An investigation found fake bank accounts, customers and invoices were used to hide the fraud.
The Satyam scam was one of India's biggest corporate frauds, where the founder of Satyam Computers, Ramalinga Raju, confessed in 2009 that the company's accounts had been falsified. Raju and others had inflated revenues and profits through fake invoices and bank statements, deceiving investors and auditors. A whistleblower's email exposed the fraud of over $1 billion in inflated cash reserves. Raju and others were found guilty of fraud and sentenced to prison. The scam had major consequences, devastating Satyam and impacting India's economy, IT sector, and corporate governance standards.
A framework for business analysis and valuation using financial statements.pdfLiz Adams
This document outlines a framework for analyzing businesses using their financial statements. It discusses how financial reporting plays a critical role in capital markets by providing information to investors and intermediaries. The accounting system summarizes a firm's business activities into financial statements but is also influenced by the firm's accounting strategies and choices. Effective financial statement analysis aims to gain valuable insights about a firm's current performance and future prospects by interpreting financial information in the context of its industry and strategies.
The document outlines a framework for analyzing businesses using their financial statements. It discusses how financial statements provide information to various stakeholders like security analysts, loan officers, and corporate managers. It also describes how a business's activities are influenced by its economic environment and strategy, and how its accounting system measures and reports on these activities in financial statements. Finally, it presents the steps of business analysis as including evaluating the business strategy, accounting practices, current financial performance, and making future predictions.
Earnings management involves using accounting techniques to alter financial results within GAAP, while fraud intentionally misleads through financial statements in violation of law. While the two can be similar in distorting financial reports, earnings management does not necessarily constitute fraud if performed within the boundaries of accepted accounting standards. However, abusive earnings management could lead firms into committing accounting fraud.
Assignment 1 Foreign Source Income Rules (Client Letter)Due Wee.docxtrippettjettie
Assignment 1: Foreign Source Income Rules (Client Letter)
Due Week 2 and worth 160 points
You are a CPA working as a tax professional engaged to provide tax advice to a client with operations in the United States and internationally. The client has specifically requested information on strategies that she can use to minimize the tax effects of foreign sourced income.
Use your text, the Internet, and / or Strayer Learning Resource Center to research the various rules regarding source rules for income and deductions.
Write a one to two (1-2) page paper in which you:
1. Create a letter to communicate to your client about the source rules for income and deductions and the conditions under which income received in foreign countries may or may not be taxed in the U.S.
2. Present a proposal to the client as to how to reduce the U.S. tax impact from income received from outside the U.S. Provide details to support your proposal.
3. Use at least two (2) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.
4. Format your assignment according to the following formatting requirements:
·
a. Typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
b. Include a cover page containing the title of the assignment, the students name, the professors name, the course title, and the date. The cover page is not included in the required page length.
c. Include a reference page. Citations and references must follow APA format. The reference page is not included in the required page length.
The specific course learning outcomes associated with this assignment are:
· Analyze the source rules reach of the U.S. Tax Code in regard to international taxation.
· Use technology and information resources to research issues in international tax planning and research.
· Write clearly and concisely about international tax planning and research using proper writing mechanics.
Click here to view the assignment rubric.
See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/271133751
CORPORATE ACCOUNTING SCANDAL AT
SATYAM: A CASE STUDY OF INDIA'S ENRON
ARTICLE · APRIL 2013
CITATIONS
3
READS
14,224
1 AUTHOR:
Madan Bhasin
Universiti Utara Malaysia
61 PUBLICATIONS 122 CITATIONS
SEE PROFILE
All in-text references underlined in blue are linked to publications on ResearchGate,
letting you access and read them immediately.
Available from: Madan Bhasin
Retrieved on: 02 April 2016
https://www.researchgate.net/publication/271133751_CORPORATE_ACCOUNTING_SCANDAL_AT_SATYAM_A_CASE_STUDY_OF_INDIA%27S_ENRON?enrichId=rgreq-7575bbc3-6176-48c6-8023-d62e4623d53f&enrichSource=Y292ZXJQYWdlOzI3MTEzMzc1MTtBUzoxODc2OTYwNTYxMTkyOTdAMTQyMTc2MTYzNTgwNA%3D%3D&el=1_x_2
https://www.researchgate.net/publication/271133751_CORPORATE_ACCOUNTING_SCANDAL_AT_SATYAM_A_CASE_STUDY_OF_INDIA%27S_ENRON?enrichId=rgreq-7575bbc3-6176-48c6-8023-d62e4623d ...
Satyam Scandal Analysis- Ethical behaviour Swapnil Mali
The document summarizes the Satyam accounting scandal that occurred in India in 2009. It provides background on Satyam, describing it as a large, successful IT company. It then discusses how the scandal unfolded, with Satyam's CEO Ramalinga Raju resigning and confessing to inflating revenues and cash balances by $1.5 billion through fake accounting entries. The scandal wiped out wealth for Satyam investors. It analyzes how the fraud occurred and questions how auditors did not detect the fabricated financial information.
Financial fraud cost $1.9 billion in 2019 according to the FTC, with common types including inflating earnings by extending depreciation periods, hiding debt, recognizing revenue early while delaying expenses, and incorrect capitalization of expenses. Notable fraud cases include Enron, Volkswagen, Lehman Brothers, Wells Fargo, and Bernie Madoff's Ponzi scheme. Cryptocurrencies are also at risk of fraud due to lack of sovereign backing, volatility, and lack of clarity. Companies can prevent fraud by studying governance, auditing thoroughly, monitoring stakeholder relationships, and ensuring performance is consistent with industry peers.
The document discusses the code of ethics for the accountancy profession in Malaysia. It covers several topics: the role of professional accountants and concepts like blind loyalty; types of fraud and white-collar crimes; relevant acts and policies; expectations of accountants regarding integrity, competence and independence; sources of ethical guidance like the IFAC code; and effective implementation of codes of conduct. It also provides a case study scenario involving ethical dilemmas related to financial misrepresentation, conflicts of interest, and suspected fraud at a client organization.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB HAMT
Common mistakes and uncommon losses: Real case studies from the Indian market. This presentation covers the case studies of the companies where the investment went down the drain.
The presentation was delivered at CFA Institute on 7th Mar 2020.
This presentation covers case studies as if we are in that time period and to check if numbers could tell us upcoming problems.
Added 3 new case studies and a quiz
Case study 1: Slide# 37-41
Case study 2: Slide# 42-47
Case study 3: Slide# 48-52
Quiz: Slide# 58
It also covers investing principles to screen stocks, avoid common mistakes backed by several real case studies from the Indian market
Objectives-
Quick screening to avoid major mistakes
What are the parameters that you must see
Sources to get the lists
Case studies covering failures and frauds
Delayed gratification: Most important quality
Linguists and psychologists have developed techniques to identify deceptive language and behavior. Why don’t shareholders use these same techniques to evaluate the truthfulness of management and detect financial manipulation?
This document discusses various ethical issues that can arise in the finance sector. It covers frauds like credit card and check fraud, securities fraud, and computer fraud. It also discusses types of bank frauds such as unauthorized credit extensions and deposit account fraud. Regarding the insurance sector, it identifies three types of fraud and notes fraud can occur during the proposal, contract, or claims stages. It also provides measures to combat fraud in banking like anti-money laundering acts and for insurance like regulation, transparency, and legislation. The document closes by discussing creative accounting, abusive tax shelters, insider trading, and the role of ethics codes.
This document discusses creative accounting and explores why managers engage in it. It notes that while creative accounting is often portrayed negatively, it can actually help companies in difficult times if used properly. An example is given of Pakistani cement companies during an economic downturn that used creative accounting to convert depreciation from a fixed to variable cost, allowing them to report profits and minimize losses. The document examines definitions of creative accounting, motivations for managers to engage in it such as meeting targets or smoothing earnings, and how it can be used to deliberately misrepresent financial information, for example by changing accounting policies or overstating assets. It concludes that while abuse of creative accounting can be harmful, moderate use that follows accounting standards may provide benefits.
This document discusses financial disclosure practices in Pakistan. It provides an introduction to good corporate governance principles of transparency, accountability, fairness and responsibility. It then gives a brief history of corporate governance development in Pakistan, including key acts, regulations and codes issued. The document outlines requirements for financial disclosure in annual reports and reasons for financial disclosure. It discusses advantages such as regulatory compliance, reputation and investor interest, and disadvantages of non-disclosure. It also describes instances of financial fraud in Pakistan such as the PTCL and Crescent Investment Bank scandals.
This document discusses corporate governance in India. It defines corporate governance as ensuring companies are governed in stakeholders' best interests through systems, processes and principles. It outlines key concepts like transparency, compliance and shareholder protection. The history of corporate governance in India is also presented, along with the various laws and committees that have helped shape governance standards over time. Objectives, benefits and key principles of corporate governance are defined.
Accounting fraud involves intentionally manipulating accounting records to misrepresent a company's financial situation. Common types of accounting fraud include overstating revenues or assets and understating expenses. Red flags that could indicate potential accounting fraud include unusual increases in end-of-year revenues, non-matching revenue and cash flow growth, and inconsistent financial reporting. Companies can help prevent fraud by implementing strong internal controls, codes of ethics, and oversight of financial reporting and management compensation.
1. The Satyam case involved a $1.4 billion fraud perpetrated by its founder Ramalinga Raju through falsifying the company's accounts.
2. Raju inflated cash balances, receivables, interest income and profits in financial statements for years, deceiving auditors, investors and regulators.
3. The fraud was exposed when Raju confessed to overstating assets by $1.47 billion and income figures. An investigation found fake bank accounts, customers and invoices were used to hide the fraud.
The Satyam scam was one of India's biggest corporate frauds, where the founder of Satyam Computers, Ramalinga Raju, confessed in 2009 that the company's accounts had been falsified. Raju and others had inflated revenues and profits through fake invoices and bank statements, deceiving investors and auditors. A whistleblower's email exposed the fraud of over $1 billion in inflated cash reserves. Raju and others were found guilty of fraud and sentenced to prison. The scam had major consequences, devastating Satyam and impacting India's economy, IT sector, and corporate governance standards.
A framework for business analysis and valuation using financial statements.pdfLiz Adams
This document outlines a framework for analyzing businesses using their financial statements. It discusses how financial reporting plays a critical role in capital markets by providing information to investors and intermediaries. The accounting system summarizes a firm's business activities into financial statements but is also influenced by the firm's accounting strategies and choices. Effective financial statement analysis aims to gain valuable insights about a firm's current performance and future prospects by interpreting financial information in the context of its industry and strategies.
The document outlines a framework for analyzing businesses using their financial statements. It discusses how financial statements provide information to various stakeholders like security analysts, loan officers, and corporate managers. It also describes how a business's activities are influenced by its economic environment and strategy, and how its accounting system measures and reports on these activities in financial statements. Finally, it presents the steps of business analysis as including evaluating the business strategy, accounting practices, current financial performance, and making future predictions.
Earnings management involves using accounting techniques to alter financial results within GAAP, while fraud intentionally misleads through financial statements in violation of law. While the two can be similar in distorting financial reports, earnings management does not necessarily constitute fraud if performed within the boundaries of accepted accounting standards. However, abusive earnings management could lead firms into committing accounting fraud.
Assignment 1 Foreign Source Income Rules (Client Letter)Due Wee.docxtrippettjettie
Assignment 1: Foreign Source Income Rules (Client Letter)
Due Week 2 and worth 160 points
You are a CPA working as a tax professional engaged to provide tax advice to a client with operations in the United States and internationally. The client has specifically requested information on strategies that she can use to minimize the tax effects of foreign sourced income.
Use your text, the Internet, and / or Strayer Learning Resource Center to research the various rules regarding source rules for income and deductions.
Write a one to two (1-2) page paper in which you:
1. Create a letter to communicate to your client about the source rules for income and deductions and the conditions under which income received in foreign countries may or may not be taxed in the U.S.
2. Present a proposal to the client as to how to reduce the U.S. tax impact from income received from outside the U.S. Provide details to support your proposal.
3. Use at least two (2) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.
4. Format your assignment according to the following formatting requirements:
·
a. Typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
b. Include a cover page containing the title of the assignment, the students name, the professors name, the course title, and the date. The cover page is not included in the required page length.
c. Include a reference page. Citations and references must follow APA format. The reference page is not included in the required page length.
The specific course learning outcomes associated with this assignment are:
· Analyze the source rules reach of the U.S. Tax Code in regard to international taxation.
· Use technology and information resources to research issues in international tax planning and research.
· Write clearly and concisely about international tax planning and research using proper writing mechanics.
Click here to view the assignment rubric.
See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/271133751
CORPORATE ACCOUNTING SCANDAL AT
SATYAM: A CASE STUDY OF INDIA'S ENRON
ARTICLE · APRIL 2013
CITATIONS
3
READS
14,224
1 AUTHOR:
Madan Bhasin
Universiti Utara Malaysia
61 PUBLICATIONS 122 CITATIONS
SEE PROFILE
All in-text references underlined in blue are linked to publications on ResearchGate,
letting you access and read them immediately.
Available from: Madan Bhasin
Retrieved on: 02 April 2016
https://www.researchgate.net/publication/271133751_CORPORATE_ACCOUNTING_SCANDAL_AT_SATYAM_A_CASE_STUDY_OF_INDIA%27S_ENRON?enrichId=rgreq-7575bbc3-6176-48c6-8023-d62e4623d53f&enrichSource=Y292ZXJQYWdlOzI3MTEzMzc1MTtBUzoxODc2OTYwNTYxMTkyOTdAMTQyMTc2MTYzNTgwNA%3D%3D&el=1_x_2
https://www.researchgate.net/publication/271133751_CORPORATE_ACCOUNTING_SCANDAL_AT_SATYAM_A_CASE_STUDY_OF_INDIA%27S_ENRON?enrichId=rgreq-7575bbc3-6176-48c6-8023-d62e4623d ...
Satyam Scandal Analysis- Ethical behaviour Swapnil Mali
The document summarizes the Satyam accounting scandal that occurred in India in 2009. It provides background on Satyam, describing it as a large, successful IT company. It then discusses how the scandal unfolded, with Satyam's CEO Ramalinga Raju resigning and confessing to inflating revenues and cash balances by $1.5 billion through fake accounting entries. The scandal wiped out wealth for Satyam investors. It analyzes how the fraud occurred and questions how auditors did not detect the fabricated financial information.
Similar to Chap 4-Financial Statement Fraud.pptx (20)
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
University of North Carolina at Charlotte degree offer diploma Transcripttscdzuip
办理美国UNCC毕业证书制作北卡大学夏洛特分校假文凭定制Q微168899991做UNCC留信网教留服认证海牙认证改UNCC成绩单GPA做UNCC假学位证假文凭高仿毕业证GRE代考如何申请北卡罗莱纳大学夏洛特分校University of North Carolina at Charlotte degree offer diploma Transcript
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Understanding how timely GST payments influence a lender's decision to approve loans, this topic explores the correlation between GST compliance and creditworthiness. It highlights how consistent GST payments can enhance a business's financial credibility, potentially leading to higher chances of loan approval.
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...Donc Test
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting, 8th Canadian Edition by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Ebook Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Pdf Solution Manual For Financial Accounting 8th Canadian Edition Pdf Download Stuvia Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Financial Accounting 8th Canadian Edition Ebook Download Stuvia Financial Accounting 8th Canadian Edition Pdf Financial Accounting 8th Canadian Edition Pdf Download Stuvia
Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
2. These are interesting times
Number and size of financial statement frauds are i
ncreasing.
Number and size of frauds against organizations ar
e increasing.
Some recent frauds include several people—as man
y as 20 or 30 (seems to indicate moral decay).
Many investors have lost confidence in credibility
of financial statements and corporate reports.
More interest in fraud than ever before—now a cou
rse on many college/university campuses.
3. Financial Statement Fraud
• Misstatement of financial statements can result fro
m
manipulating, falsifying, or altering accounting
records.
• Misleading financial statements cause serious
problems in the market and the economy.
• Often result in large losses for investors, lack of tru
st
in the market and accounting systems
4. What are Financial Statements
?
Balance Sheet
Income Statement
Cash flow Statement
Fund Statement
5. Elements of the Perfect Fraud Sto
rm
A Booming Economy
Decay of Moral Values
Misplaced Incentives
High Analysts’ Expectations
High Debt Levels
Focus on Accounting Rules Rather than Principles
Lack of Auditor Independence
Greed
Educator Failures
6. Why Fraud is a Costly Business P
roblem
Fraud Losses Reduce Net Inc
ome Rs. for Rs.
If Profit Margin is 10%, Reve
nues Must Increase by 10 ti
mes Losses to Recover Affec
t on Net Income
Losses……. Re.1
Revenue….Rs.10
Fraud Robs Income
Revenues Rs.100 100%
Expenses 90 90%
Net Income Rs. 10 10%
Fraud 1
Remaining Rs. 9
To restore income to Rs. 10, ne
ed 10 more Rs. of revenue to g
enerate 1 more Re. of income.
7. Financial Statement Fraud
Financial statement fraud causes a decr
ease in market value of stock approxima
tely 500 to 1,000 times the amount of the
fraud.
$7 million fraud $2 billion drop in
stock value
8. Types of Fraud
Fraudulent Financial Sta
tements
Employee Fraud
Vendor Fraud
Customer Fraud
Investment Scams
Bankruptcy Frauds
Miscellaneous Frauds
The common element is
deceit or trickery!
9. Detecting Financial Statement Frau
d
Strategic Reasoning
Questions to ask:
– What types of fraud schemes is management likely to us
e to commit financial statement fraud?
– What typical tests are used to detect these schemes?
– How could management conceal the scheme of interest f
rom the typical test?
– How could the typical test be modified so as to detect the
concealed scheme?
.
10. Detecting Financial Statement Frau
d
Financial Statement Analysis
Focus on the changes in reported assets, liabilities, revenues, and expenses f
rom period to period or by comparing company performance to industry nor
ms.
Non-financial performance measures
Research suggests that auditors, investors, regulators, or fraud examiners can
benefit by using non-financial performance measures to assess the likeliho
od of fraud.
Non-financial Performance Measures look for a discrepancy between the co
mpany’s financial and nonfinancial performance
11. Detecting Financial Statement Fra
ud
In addition to considering financial and non-financial data to a
ssess fraud risk, auditors can identify fraud risk exposures by
examining four groups of fraud exposures
1. Management & Board
2. Relationships With Others
3. Organization & Industry
4. Financial Results & Operating Characteristics
12. Financial Statement Frauds
Harshad Mehta
Talking of scams, how can we forget Harshad Mehta. He was known to have fooled
many investors by taking advantage of loop holes in the system. This was proba
bly the most publicized scam and came to be know as the Harshad Mehta scam
.
Harshad and his associates initiated a securities scam by diverting funds of about R
s 5,000 crore from the banks to stockbrokers between April 1991 to May 1992. A
fter the scam was exposed, the stock markets crashed and Mehta was arrested
and banned from trading in the stock markets.
Ketan Parekh
Following the footsteps of Mehta, Ketan Parekh had bigger plans. He conn
ed banks and exchanges like the Allahabad Stock Exchange and the C
alcutta Stock Exchange, and bought shares in fictitious names to manip
ulate the share prices in companies. Ketan was a chartered accountant
who used to run a family business, named NH Securities.
13. Satyam Scam India's one of the biggest corporate scandal affecting Ind
ia-based company Satyam Computer Services in 2009 in which Satyam
Company's chairman Ramalinga Raju confessed that he manipulated a
ccounts to show increased sales, profits and margins from 2003 to 200
8. CBI took over the investigation and filed three partial charge sheets o
ver the course of the year. It later merged those three partial charge she
ets into a single charge sheet. On April 9, 2015, B. Ramalinga Raju, alo
ng with 9 others were pronounced guilty in the Satyam Scam.
Roop Bhansali scam CRB was once a top-notch investment banking fi
rm, started by C R Bhansali. Roop Bhansali, through mutual funds, fixe
d deposits and debentures collected money from investors. With the hel
p of non-existent companies he is raised money and transferred to his o
ther shell companies or others who invested with him.
14. Urata Roy Subrata Roy case is also called Sahara India Pariwar inves
tor fraud case. In this case Subrata Roy, the chairman of the Sahara Ind
ia failed to return Rs 24,000 crore plus interests to its investors as direct
ed by the Supreme Court of India.
Eventually, he was arrested by Uttar Pradesh police on a Supreme Court w
arrant. Then Supreme court of India granted interim bail on condition th
at he should deposit Rs 10,000 crore with Securities and Exchange Boa
rd of India(SEBI). Subrata was eventually taken into judicial custody an
d sent to Tihar jail, along with two other Sahara directors, for failing to d
eposit Rs 10,000 crore to SEBI as per Supreme court of India orders.
Saradha Scam Chit-fund company Saradha Group's Chairman Sudipta Sen
ran various investment schemes and collected money from many investors i
n West Bengal and Odisha.
15. NSEL Scam Money from investors were siphoned off as the most of the un
derlying commodities did not exist and the buying and the selling of commo
dities was being only conducted only on paper. Investors were attracted by
offering fixed returns on paired contracts in commodities. And it was lately, f
ound out the stocks were missing. The NSEL is a company promoted by Fin
ancial Technologies India Ltd and the NAFE. Jignesh Shah along with Shre
ekant Javalgekar were accused of the scam.
Coal Scam Coal allocation scam also know as Coalgate scam is a political
scandal concerning the Indian government's allocation of the nation's coal d
eposits to public sector entities (PSEs) and private companies. There was w
rongful allocation of coal deposits among government employees without co
mpetitive bidding.
2G Spectrum Scam It was a telecommunications scam and political scand
al in which politicians and government officials under undercharged mobile t
elephone companies for frequency allocation licenses. According to CAG, fo
rmer Telecom minister A Raja has evaded norms and carried out the dubiou
s 2G license awards in 2008.
16. Why so many financial statement fr
auds all of a sudden?
1. Good economy was masking many problems
With increasing stock prices, increasing profit
s and increasing wealth for everyone, no one
worried about potential problems.
How to value a dot.com company:
– Take their loss for the year
– Multiply the result by negative 1 to make it positive
– Multiply that number by at least 100
– If stock price is less than the result…buy; if not, buy
anyway
17. 2. Moral decay in society
3.Executive incentives
4.Nature of accounting rules
5.Behavior of CPA firms
18. 6.Greed by investment banks, com
mercial banks, and investors
Incentives to commit financial statement frauds are very
strong. Investors want decreased risk and high returns.
Risk is reduced when variability of earnings is decreased.
Rewards are increased when income continuously improves.
Which firm will have the higher stock price?
Firm A Firm B
19. 7.Educator failures
Need to teach Ethics more
Need to teach students/public about fraud
—offer a “fraud detection and prevention” c
ourse
Need to teach students/public how to think
– We have taught them how to copy, not to think
– We have asked them to memorize, not to think
– We have done what is easiest for us and easie
st for our students/public.
20. Financial frauds indicators check list
Cash-only transactions.
Poorly reconciled cash expenses or customer accounts.
Rising costs with no explanation or that are not commensurate with an incre
ase in revenue.
Large volume of refunds to customers.
Unusually large inventories.
Unusual transactions or inter-account transfers (even for small amounts).
Remuneration disproportionately linked to activities such as sales.
Employees known by others to be under external financial pressure.
Employees who appear to make a greater than normal number of mistakes,
especially where these lead to financial loss through cash or account transa
ctions.
Employees with unexplained sources of wealth.
Employees with competing or undeclared external business interests.
Employees who submit inconsistent and/or unreasonable expense claims.
Employees at the highest level of performance (eg sales) where there might
be a concern that they are achieving this through suspect activity.
21. Most common Financial State
ment Frauds
Revenue/Accounts Receivable Frauds
Inventory/Cost of Goods Sold Frauds
Understating Liability/Expense Frauds
Overstating Asset Frauds
Overall Misrepresentation
22. Revenue Related Financial State
ment Frauds
By far, the most common accounts mani
pulated when perpetrating financial state
ment fraud are revenues and/or account
s receivable.
Accounts Receivable xxx
Revenues xxx
(Income Assets )
23. Transaction Accounts Involved Fraud Schemes
1. Estimate all
uncollectible
accounts receivable
Bad debt expense,
allowance for
doubtful accounts
1. Understate allowance for doubtful
accounts, thus overstating receivables
2. Sell goods and/or
services to
customers
Accounts receivable,
revenues (e.g. sales
revenue) (Note: cost
of goods sold part of
entryh is included in
Chapter 5)
2. Record fictitious sales (related parties,
sham sales, sales with conditions,
consignment sales, etc.)
3. Recognize revenues too early (improper
cutoff, percentage of completion, etc.)
4. Overstate real sales (alter contracts,
inflate amounts, etc.)
3. Accept returned
goods from
customers
Sales returns,
accounts receivable
5. Not record returned goods from
customers
6. Record returned goods after the end of
the period
4. Write off
receivables as
uncollectible
Allowance for
doubtful accounts,
accounts receivable
7. Not write off uncollectible receivables
8. Write off uncollectible receivables in a
later period
5. Collect cash after
discount period
Cash, accounts
receivable
9. Record bank transfers as cash received
from customers
10. Manipulate cash received from related
parties
6. Collect cash within
discount period
Cash, sales
discounts, accounts
receivable
11. Not recognize discounts given to
customers
Revenue-Related Transactions and Frauds
24. Overstating Inventory
(2nd Most Common)
The second most common way to comm
it financial statement fraud is to overstat
e inventory.
Beginning Inventory OK
Purchases OK
Goods Available for sale OK
Ending Inventory High
Cost of Goods Sold Low
Income High
25. Transaction Accounts Involved Fraud Schemes
1. Purchase inventory Inventory, accounts
payable
1. Under-record purchase
2. Record purchases too late
3. Not record purchases
2. Return merchandise to
supplier
Accounts payable,
inventory
4. Overstate returns
5. Record returns in an earlier period (cutoff
problem)
3. Pay vendor w ithin
discount period
Accounts payable,
inventory, cash
6. Overstate discounts
7. Not reduce inventory cost
4. Pay vendor w ithout
discount
Accounts payable, cash Considered in another chapter
5. Inventory is sold; cost
of goods sold is
recognized
Cost of goods sold,
inventory
8. Record at too low an amount
9. Not record cost of goods sold nor reduce
inventory
6. Inventory becomes
obsolete
Loss on w rite-dow n of
inventory, inventory
10. Not w rite off or w rite dow n obsolete inventory
7. Inventory quantities
are estimated
Inventory shrinkage,
inventory
11. Over-estimate inventory (use incorrect ratios,
etc.)
8. Inventory quantities
are counted
Inventory shrinkage,
inventory
12. Over-count inventory (double counting, etc.)
9. Inventory cost is
determined
Inventory, cost of goods
sold
13. Incorrect costs are used
14. Incorrect extensions are made
15. Record fictitious inventory
Inventory/Cost of Goods Sold Frauds
26. Understating Liability Frauds
(3rd Most Common)
Not recording accounts payable
Not recording accrued liabilities
Recording unearned revenues as earne
d
Not recording warranty or service liabiliti
es
Not recording loans or keep liabilities off
the books
Not recording contingent liabilities
27. Asset Overstatement Frauds
(4th Most Common)
Overstatement of current assets (e.g. marketa
ble securities)
Overstating pension assets
Capitalizing as assets amounts that should be
expensed
Failing to record depreciation/amortization exp
ense
Overstating assets through mergers and acqui
sitions
Overstating inventory and receivables (covere
d earlier)
28. Disclosure Frauds
Three Categories of Disclosure Frauds:
1. Overall misrepresentations about the nature of the co
mpany or its products, usually made through news re
ports, interviews, annual reports, and elsewhere.
2. Misrepresentations in the management discussions a
nd other non-financial statement sections of annual r
eports and other reports.
3. Misrepresentations in the footnotes to the financial st
atements.