Financial Statements Fraud

Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”

Internal fraud consists in “a type of fraud that is committed by an individual against an organization. [Furthermore], a perpetrator of fraud engages in activities that are designed to defraud, misappropriate property, or circumvent the regulations, law, or policies of a company”[8]. Not only has the incidence of internal fraud increased in frequency because of the availability of sensitive information such as client details or confidential business documents; moreover, this type of fraud is found in various types of organizations, ranging from corporations, public service institutions and financial institutions. Our analysis will concentrate on the most common and prolific types of internal fraud, namely identity theft, insider trading, loan fraud and wire fraud. Interestingly, PriceWaterhouseCooper conducted a survey that revealed that the “demographics of a typical fraudster are as follows: males (85% of cases), 31-50 years (72% of cases), reached high-school level (50%), Bachelor’s or post graduate degree (50%) and middle or senior management (52%)”[9].

It is important to first gain an understanding of the various types of fraud, in order to aid understanding in regards to the prevention of fraudulent activity. This paper begins with a review of the definition of financial fraud, and identification of the different fraud types. Further, included is an examination of what motivates individuals to commit fraud, including an identification of some of the method in which people commit fraud. A discussion of the importance of the fraud triangle, and how rationalization contributes to fraud is a key area of focus. Finally, there is an examination of some controls that prevent and detect fraudulent behavior, including the value and importance of understanding the nature of fraud for

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In a supervised technique, predicted values are obtained with the aid of reading statistics of each fraudulent and non-fraudulent claims.[41] According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it calls for absolute truth that the ones claims analyzed are sincerely both fraudulent or non-fraudulent, and because it may handiest be used to detect kinds of fraud that have been devoted and identified

Fraud can be found in all insurance sorts including medical coverage. Fraud in medical coverage is finished by purposeful duplicity or deception for increasing some decrepit advantage as wellbeing uses. Data mining apparatuses and strategies can be utilized to identify fraud in extensive arrangements of insurance claim data. In light of a couple of cases that are known or suspected to be fraudulent, the abnormality recognition procedure computes the probability or likelihood of each record to be fraudulent by breaking down the past insurance claims. The investigators would then be able to have a nearer examination for the cases that have been set apart by data mining programming.

Forensic accountants use data mining software to examine data sets or metadata to identify patterns, anomalies, and trends to answer business queries and provide predictive value for future events. It incorporates algorithms to explore, analyze, classify, relate, and partition data sets that are used to develop

The general purpose of this research is to determine the cause for financial statement fraud. In addition, the purpose is to review ways fraudulent behavior can be detected and prevented. Lastly,

3.5 A Fraud matrix (Appendix 5) was prepared to identify and investigate any possible fraud within the accounting system, and conducting a detailed analysis of the controls in place to prevent such occurrences.

There were 347 alleged cases of fraud involving public company according to Fraudulent Financial Reporting: 1998-2007 sponsored by Committee of Sponsoring Organizations of the Treadway Commission (COSO, 2010) that were investigated by Securities and Exchange Commission (SEC) on May 2010, which is showing 53 increased in the number of fraud when compared to the 1987-1997 study (p.5). COSO’s result is a sad number in a 10 year period, which averaging close to 35 accounting frauds a year (p.5). COSO’S study shows out of the nearly 350 financial frauds investigated 60% were identified to involved improper revenue recognition and 89% were recognized the CEOs and/or CFOs involvement (p.5). COSO’s research

Many organizations have been in the news over the past few years due to accounting ethical breaches that have affected their customers, employees, and the general public. I searched the Internet to locate a story in the news that depicts an accounting ethical breach. I selected Krispy Kreme. I enjoy their hot donuts and was curious to learn more about how they played with the numbers. For some reason I always want to dig into the trickery behind the manipulation of financial statements.

When it comes to search proactively for revenue frauds, there will be analysis of financial balances and relationships within the financial statement. Besides, there will be comparison

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

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

Financial statement fraud is any intentional or grossly negligent violation of generally accounting principles (GAAP) that is undisclosed and materially effects any financial statement. Fraud can take many forms, including hiding both bad and god news. Research shows that financial statement fraud us relatively more likely to occur in companies with assets of less than $100 million, with earnings problems, and with loose governance structures (Hopwood, Leiner, & Young, 2011).