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Paper Topic:

fraudulent financial reports

Fraudulent Financial Reports Introduction

Fraudulent financial reports are a serious problem in today 's business Many analysts are now aware their analysis of financial statements is only as good as the statements themselves , and exploration of faked numbers is of little use to the potential investor . There can be arguments as to what inspires modern-day executives fake their numbers but one thing is clear : the corporate America cannot afford to fool the investors much longer without losing their faith . Scandals involving Enron , WorldCom and other companies have already set investors on edge

br making them suspicious of corporate activities and reporting . The whole functioning of today 's economy is in heavy dependence on the health of the financial system which in turn needs valid information to draw conclusions from . This will attempt to research whether it is possible to detect the fraud in financial statements early on and whether these methods will prove to be useful in eliminating fraud in modern-day companies

A Little History

The scam in financial reporting did not appear in the past decade . In fact , throughout much of the first half of the 20th century , fraud was often used to manipulate stock prices , and to boost the value of some stocks way beyond their realistic valuations

One of the most famous swindlers , Charles "Get Rich Quick ) Ponzi launched what later became known as a Ponzi scheme . His business model promised investors sky-high return levels , while in fact it was grounded in the continuous expansion of his scheme to pay the old investors with funds coming from the new entrants . Here the trick was to fool common people , and in the scheme carried out by the famous Ivar Kreuger , he often switched companies ' assets and liabilities or created fictitious assets when existing ones weren 't enough , eventually robbing lenders and shareholders out of 500 ,000 ,000 (Shilit 1994

In the second half of the past century , reporting scams were definitely on the rise , perhaps reaching a culmination in 1992 that might be remembered as the "Year of the Scam (Shilit 1994 . This year was marked by the downfall of a number of companies , including Cascade International , Maxwell Communications , College Bound , Phar-Mor Comptronix - in about this . While the public was shaken by the terrible news , it also witnessed the settlement of the two previous scandals including MiniScribe and Lincoln Savings Loan

Fraud and Loopholes

One can differentiate between the fraud perpetrated at the company and all sorts of loopholes in the accounting procedures that allow companies to walk away with violating the spirit of Generally Accepted Accounting Principles (GAAP , but not the letter . For instance , when Enron boosted its revenue , it was in fact using one of the loopholes in the then rules that allowed the company to book not only the revenue it earned , but also the amount of transactions it mediated

Fraud can be detected early with the participation of a team of auditors that are instructed to check on the company 's reporting as...

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