The Theory Of Accounting Fraud

3500 Words Nov 16th, 2014 14 Pages
A number of cases of fraudulent accounting have been reported over the last fifty years. However, in each case the manner in which the fraud was perpetrated was different
In the UK there is no legal definition of fraud (Levi, Information Gathering Working Party and Doig, 1999). Black’s Law Dictionary (1999) defines fraud as “a knowing misrepresentation of the truth or concealment of a material fact”. When we apply this to the world of accountancy there can be confusion between fraud and ‘creative accountancy’. Amat et al (1999) defines creative accounting as 'a process whereby accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business '. Despite accounting standards and their related punishments, many companies consistently use fraudulent methods to increase profits, reduce costs and increase equity. A number of theories have been developed to explain the dynamics behind accounting frauds.
The most important theory of accounting fraud is the ‘fraud triangle’. Developed by Cressey (1953), the fraud triangle and attempts to explain the 3 factors that must be present for an ordinary person to commit fraud of any kind (Appendix 1). The first factor, ‘pressure’ relates to the motivation of the fraud itself, for example, from competitors, directors or investors (ACFE, 2014). ‘Opportunity’ represents the method used (ACFE, 2014); most commonly the fraudulent individual is aware of a lack of adequate controls for monitoring…

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