Financial Statement Fraud: Lessons from the Zzzz Best Case

1358 WordsNov 12, 20126 Pages
ACC 461 Auditing Financial Statement Fraud: Lessons from the ZZZZ Best Case The video “Cooking the Books” discussed the ZZZZ Best case of fraud, it tells how and why fraud was perpetrated by Barry Minkow and why it was undetected for so long. According to the video, ZZZZ Best was founded by Barry Minkow in 1982; when he was sixteen years old, it started as a carpet cleaning company. But, due to high competition in the industry, low entry barriers, and bad internal control, this young entrepreneur started to have cash flow problems, thus creating a shortage of working capital. As a result of the financial pressure, he started to commit fraud by creating false accounts receivable and sales, false documents (using photocopies of real…show more content…
Some industry-specific factors, such as having valuable near-cash assets, can increase the organization's vulnerability. Also they will need to rationalize the actions as justifiable. The individuals committing the fraud must first convince themselves that their behavior is acceptable or will be temporary. For example, Barry Minkow’s believed that the lies and deceit are for the betterment of his company and that with time everything will eventually return to normal. 4. What was Barry Minkow’s primary motivation to commit financial statement fraud? Barry Minkow’s primary motivation was the fact that he needed money to pay all his debts. He had a lot of competition and there was a low margin of profit in his line of business, therefore, he needed money to keep his business running as a result he tried to get any amount of money from anywhere and anyone. He started using user loans-borrowing money from person A and give to person B and borrowing money from person C to pay back the loan for person B. As a result, he got himself in debts; and he started looking for ways to make his company appear more lucrative than it was. He created 10,000 phony documents to cheat creditors for money, and started his Perpetration Restoration Fraud-(making more money than really exists and borrowing more money than the company really

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