Financial Reporting Fraud
Are you interested in learning about financial reporting fraud? There are many ways for stockholders as well as the general public to be misinformed as to a companies performance in order to obtain a favorable image. A person or a group of people will use the below listed means to deceive.
- False financial information. False financial information such as the number or amount of sales, contingent revenues marked as earnings, etc. can be inflated or misrepresented to enhance a companies performance. This action is viewed as a deliberate form of financial reporting fraud.
- Overstated net incomes, revenues and assets. Overstated net incomes, revenues and assets are financial reporting fraud. Many times assets are found to be worthless or of far less value than claimed. Loans may also be given to top employees, etc. at a fair or low interest rate with most not being repaid. This in turn turns a income (or asset) into a loss.
- Understating liabilities, obligations, associated costs and expenses. Understating liabilities, obligations, associated costs and expenses such as improper capitalization and incorrect use of reserves can adversely effect the entire structure of the company. Making provisions for future expenses (the amount is unknown but estimated) will also affect a companies performance and is considered financial reporting fraud.
- Improperly recorded transactions. Deliberate financial reporting fraud occurs when transactions are not timed properly, especially at the end of a quarter, year, etc. This happens to not give a clear view of the entire financial situation of a corporation.
- Improper accounting. Improper accounting can be used for reserves, executive bonuses, depreciation (values change) or related party transactions. When the CFO, accounting department, etc. is aware of the improper accounting financial reporting fraud has occurred. Many times a small number of loyal people work together to deceive the stockholders, outside accounting services, government agencies, etc.