Question

Because all fraud involves some form of financial misstatement, how is fraudulent statement fraud different? 

Answer 1

Fraudulent statements are associated with management fraud. While all fraud involves some form of financial misstatement, to meet the definition under this class of fraud scheme, the statement itself must bring direct or indirect financial benefit to the perpetrator. In other words, the statement is not simply a vehicle for obscuring or covering a fraudulent act. For example, misstating the cash account balance to cover the theft of cash does not fall under this class of fraud scheme. On the other hand, understating liabilities to present a more favorable financial picture of the organization to drive up stock prices does qualify.

Management fraud involves financial statements benefiting the perpetrator directly or indirectly, not just obscuring fraudulent acts.