Question

Research the Diamond Foods accounting fraud scandal on the Internet and discuss what happened. 1. How widespread do you think Accounting Fraud is? Why? 2. As an investor, what are some red flags that could indicate the presence of fraud? You might want to ‘Google” Fraud red flags to help answer this question. 3. Comment on the role of ethics in accounting and business.

Answer 1

Solution:

1. How widespread do you think Accounting Fraud is?

Answer: Accounting Fraud is leads the financial statement false and misstated. The true financial picture is not reflected. The misstatement of the financial statement and financial performance creates barrier to state the true financial picture of the business. Its impacts negatively on the business operation and the growth of the business. The misstatement financial statement hides the weak areas of the financial statement, so the same will lead the business to the liquidation or winding up. Also the interest of the shareholders and the other users of the financial statement are affected negatively for the accounting fraud.

2. As an investor, what are some red flags that could indicate the presence of fraud?

Answer: The details analysis of the financial statement helps to find out the fraud of the financial statement. There are some indicators which should be considered at the time of identifying the accounting fraud. Some red flag or indicators like negative net worth, negative cash flow, increasing in the net loss, abnormal growth of the assets and liabilities, abnormal increase or decrease in the expenses and income etc. The details analysis of these indicators helps the investors to understand the presence of fraud in the financial statement.

3. Comment on the role of ethics in accounting and business.

Answer: The ethics in accounting and business plays an important role to prevent the fraud and make the financial statement error free i.e. true and fair view of the financial statement should be reflected to understand the true picture of the business operation and the assets and liabilities of the business. The effectiveness of the internal control and internal management helps to make the ethics in accounting and business more effective. The affairs of the business and accounting should be monitor at regular interval and if there are any discrepancies then the preventive action should be taken at earliest. The proper business strategy and management makes the accounting and business more effective and efficient which will help in the overall growth of the business as well as the organization.

References:

Bhasin, M. L. (2015). Corporate accounting fraud: A case study of Satyam Computers Limited.

Lisic, L. L., Silveri, S. D., Song, Y., & Wang, K. (2015). Accounting fraud, auditing, and the role of government sanctions in China. Journal of Business Research, 68(6), 1186-1195.