New course on July 2017 - Financial Statements Fraud


This course is suitable for accountants in business and industry, fraud examiners, internal and external auditors, audit committee members, business professionals, academicians and educators, and those interested in financial statements fraud and detection.


Financial statement fraud is deliberate misrepresentation, misstatement or omission of financial statement data for the purpose of misleading the reader and creating a false impression of an organization's financial strength. Public and private businesses commit financial statement fraud to secure investor interest or obtain bank approvals for financing, as justification for bonuses or increased salaries or to meet expectations of shareholders. Upper management is usually at the center of financial statement fraud because financial statements are created at the management level.

Financial statement frauds fall into general categories. These include improper revenue recognition, manipulation of liabilities, manipulation of expenses, improper disclosures on financial statements and overstating assets.

1) Improper Revenue Recognition
The most common scheme used in financial statement fraud involves manipulation of revenue figures. According to a survey by Deloitte of Accounting and Auditing Enforcement Releases (AAER) filed by the SEC from 2000 through 2008, improper revenue recognition was recognized as the scheme employed in 38 percent of the 403 cases studied. Schemes to manipulate revenue figures typically involve posting sales before they are made or prior to payment. Examples include recording product shipments to company-owned facilities as sales, re-invoicing past due accounts to improve the age of receivables, pre-billing for future sales and duplicate billings.

2) Manipulating Expenses
Another fraud involving financial statements is the deliberate manipulation of expenses. The Deloitte survey of AAER filings by the SEC shows that 12 percent involved expense manipulation and 8 percent manipulation of liabilities. An example of manipulating expenses is to capitalize normal operating expenses. This scheme is an improper method to delay recognition of the expense and artificially raise income figures. An example of this type of scheme is the WorldCom scandal, where significant operating expenses were listed as capital on the balance sheet. Concealment and manipulation of liabilities frauds include failure to record accounts payables or report regular expenses on financial statements. Keeping certain liabilities, leaving notes or loans off-the-books and writing off money lent to executives are also common methods of fraud.

3) Improper Disclosures
Disclosure frauds are commonly based on misrepresenting the company and making false representations in press releases and other company filings. Making false statements in the commentary sections of annual reports of other regulatory filings are another source for improper disclosures. Some disclosures might be intentionally confusing or obscure and impossible to completely understand.

4) Overstating Assets
Overstatement of current assets on financial statements and failure to record depreciation expenses are often employed as methods of fraud. Overstatement of inventory and accounts receivables are also commonly used to inflate company assets on fraudulent statements.



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