Question

Explain the Reasons for Fraudulent Financial Statements and give some examples from the world.

plz no handwriting and short answers

ThNX

Answer 1

Ans:-

Financial statement fraud is just what it sounds like – falsifying balance sheets, income statements and cash-flow statements to fool the people who read them.

Reasons for Fraudulent Financial Statements:

Unsurprisingly, many people commit financial-statement fraud for personal gain. If their bonus depends on how much revenue their department brings in, it’s in their self-interest to inflate revenue on the income statement.

If company performance was poor, upper management may keep the owners happy by writing false financial statements to say otherwise.

Management fraud scheme aren’t necessarily about enriching the schemers. Business owners may manipulate the accounts to make the company look healthier to investors or lenders. They can do this by either inflating income and asset values, or underplaying the company’s debts and liabilities.

Stock fraud or stockbroker fraud may also fall under financial statement fraud definition in certain cases. This happens usually in margins trading or when an unethical stockbroker indulges in unauthorized trades or churning.

Some of the real world examples of financial statements fraud cases:

There are many recent examples of financial statements fraud. Tyco International Ltd, one of the world’s largest conglomerates, posted huge profits through financial manipulations and accounting tricks. Same was the case with the telecommunications company WorldCom. Xerox was convicted for the financial statements misconduct from 1997 to 2000 in order to boost the company’s stock price. Some of the other prominent cases include Adelphia, Global Crossing and Parmalat whose CEO was charged with money laundering from 2002 to 2005.

As technology increases and the world becomes more reliant on financial data for global interaction then there is a greater risk for financial fraud to be present.

The 21^st century has seen the collapse of many large companies such as Enron, due to errors in financial reporting and committing overt acts of financial fraud.

In 2002, the Sarbanes-Oxley Act was enacted as a direct response to financial fraud. The Sarbanes-Oxley act is also known as the SOX act or the Public Company Accounting Reform and Investor Protection Act. This bill is a direct response to the accounting scandals of the publicly traded companies Enron and WorldCom which were facilitated by the once prestigious accounting firm known as Arthur Anderson.