Question

Explain what the aim of financial statement fraud is for perpetrators and give an example of your choice.

Answer 1

Aim of financial statement fraud is for perpetrators.

Statement fraud may be defined as the intentional misstatement of certain financial values to enhance the appearance of profitability and deceive shareholders or creditors whereas transaction fraud is intended to embezzle or steal organizational assets.

Financial statement fraud may be defined as a deliberate, wrongful act committed by publicly traded companies, through the use of the materially misleading financial statement, that causes harm and injury to the investors and creditors. Falsifying financial statements is usually committed by top-level management and thus also known as management fraud with the goal to artificially improve the financial performance and results of the company.

People intent on profiting from the crime may commit financial statement fraud to obtain loans they can then siphon off for personal gain or to inflate the price of the company's shares, allowing them to sell their holdings or exercise stock options at a profit

CONSEQUENCES OF FINANCIAL STATEMENT FRAUD for perpetrators

Financial statement fraud, no doubt is going to harm the company in which it is perpetrated, but it can also affect economic markets.

gives the following summary of the potentially harmful effects of financial statement fraud for perpetrators

• It undermines the quality and integrity of the financial reporting process;

• It jeopardizes the integrity and objectivity of the accounting profession;

• It diminishes the confidence of capital markets and market participants in the reliability of financial information;

• It makes the capital market less efficient;

• It adversely affects a nation's growth and prosperity;

• It may result in litigation losses;

• It destroys the careers of individuals involved in the fraud;

• It causes bankruptcy or economic losses by the company engaged in the fraud;

• It encourages a higher level of regulatory intervention; and

Financial statement fraud is a serious social and economic problem worldwide and more severe in growing countries. A company listed with any stock exchange is required to publish its financial statements such as balance sheet, income statement, statements of retained earnings, and cash flow statements yearly and quarterly. Financial statements of a company reflect its actual financial health by analyzing which, stockholders can form a wise decision about investing in the company.