,FOR3703 OCTOBER NOVEMBER PORTFOLIO
(COMPLETE ANSWERS) Semester 2 2024 - DUE 31
October 2024; 100% TRUSTED Complete, trusted
solutions and explanations.
Scenario Financial statement fraud is a white-collar crime
usually perpetrated by management insiders to present a
company in a favourable fiscal light. Fraudsters are motivated
by personal gain such as performance-based compensation for
the enhancement of company’s reputation by misleading
potential investors. Or they want to buy time to correct their
financial mistakes or recoup their losses. Financial statement
fraud is a crime of opportunity. Companies with lax internal
controls, manual accounting systems or dishonest and overly
aggressive leaders are more likely to fall prey to it. The key to
combating financial statement fraud is to prevent it from ever
happening. If it cannot be prevented, it must be found as soon
as possible. Based on the information in the case study, answer
the following questions: 1.1. Discuss the different types of
financial statement fraud and explain why company personnel
commit it. Also indicate how financial statement fraud red flags
can signal potential fraudulent practices. (50) 1.2. Discuss the
methods to detect and prevent financial statement fraud. (50)
1.1 Different Types of Financial Statement Fraud and Reasons
for Its Occurrence
, Financial statement fraud can be classified into several
categories, each with distinct tactics aimed at misrepresenting a
company's financial health. The common types include:
1. Revenue Recognition Fraud: Manipulating how and when
revenue is recognized to inflate sales. Fraudsters might
prematurely record revenue, create fictitious sales, or
understate returns and allowances.
2. Expense Manipulation: Hiding expenses or recording them
in different periods to improve profit margins. This type
may involve capitalizing expenses (recording them as
assets) instead of recording them in the income statement.
3. Improper Asset Valuation: Inflating the value of assets on
the balance sheet, such as inventory or property, to
enhance the company’s perceived net worth. This can
include manipulating depreciation schedules or failing to
write down impaired assets.
4. Liability Concealment: Omitting or understating liabilities
to improve the company’s financial ratios. For example, a
company may hide loans or contingent liabilities to
enhance liquidity and solvency ratios.
5. Financial Statement Manipulation: This can involve
altering reports directly or reclassifying income, expenses,
or other financial items to meet desired financial ratios or
performance metrics.
Motivation Behind Financial Statement Fraud
(COMPLETE ANSWERS) Semester 2 2024 - DUE 31
October 2024; 100% TRUSTED Complete, trusted
solutions and explanations.
Scenario Financial statement fraud is a white-collar crime
usually perpetrated by management insiders to present a
company in a favourable fiscal light. Fraudsters are motivated
by personal gain such as performance-based compensation for
the enhancement of company’s reputation by misleading
potential investors. Or they want to buy time to correct their
financial mistakes or recoup their losses. Financial statement
fraud is a crime of opportunity. Companies with lax internal
controls, manual accounting systems or dishonest and overly
aggressive leaders are more likely to fall prey to it. The key to
combating financial statement fraud is to prevent it from ever
happening. If it cannot be prevented, it must be found as soon
as possible. Based on the information in the case study, answer
the following questions: 1.1. Discuss the different types of
financial statement fraud and explain why company personnel
commit it. Also indicate how financial statement fraud red flags
can signal potential fraudulent practices. (50) 1.2. Discuss the
methods to detect and prevent financial statement fraud. (50)
1.1 Different Types of Financial Statement Fraud and Reasons
for Its Occurrence
, Financial statement fraud can be classified into several
categories, each with distinct tactics aimed at misrepresenting a
company's financial health. The common types include:
1. Revenue Recognition Fraud: Manipulating how and when
revenue is recognized to inflate sales. Fraudsters might
prematurely record revenue, create fictitious sales, or
understate returns and allowances.
2. Expense Manipulation: Hiding expenses or recording them
in different periods to improve profit margins. This type
may involve capitalizing expenses (recording them as
assets) instead of recording them in the income statement.
3. Improper Asset Valuation: Inflating the value of assets on
the balance sheet, such as inventory or property, to
enhance the company’s perceived net worth. This can
include manipulating depreciation schedules or failing to
write down impaired assets.
4. Liability Concealment: Omitting or understating liabilities
to improve the company’s financial ratios. For example, a
company may hide loans or contingent liabilities to
enhance liquidity and solvency ratios.
5. Financial Statement Manipulation: This can involve
altering reports directly or reclassifying income, expenses,
or other financial items to meet desired financial ratios or
performance metrics.
Motivation Behind Financial Statement Fraud
