Types of Accounting Fraud
– Misappropriation of assets, such as stealing cash or using company assets without authorization.
– Fraudulent financial reporting, which involves manipulating accounting policies or estimates.
The Fraud Triangle
– Incentives/pressure: Motivations or pressures that drive individuals to commit fraud.
– Opportunities: Circumstances that provide opportunities for fraud to occur.
– Attitudes/rationalization: The mindset or values that allow or rationalize dishonest acts.
Causes of Fraud
– Fraud can be done through force, trickery, or stealth.
– Executive and managerial motivations, such as reducing stock prices or engaging in off-balance sheet transactions.
– Employee motivations, including personal debts or the possibility of personal benefit.
Notable Accounting Scandals
– Enron scandal involving Arthur Andersen
– WorldCom bankruptcy and accounting fraud
– AIG accounting fraud and CEO Maurice R. Hank Greenberg’s settlement
– Nortel Networks executives’ fraud trial and manipulation of reserves
– Ernst & Young’s involvement in the ESM Government Securities scandal
Consequences and Actions Taken
– Conviction and loss of CPA licenses for Arthur Andersen.
– Enforcement actions by the SEC and personal responsibility of CEOs and directors for fraud.
– Financial impact on companies, bankruptcy filings, and loss of market capitalization.
– Fines and settlements imposed on companies and executives involved in accounting fraud.
– Increased scrutiny, calls for accounting reform, and the use of deepfake detection in auditing. Source: https://en.wikipedia.org/wiki/Accounting_scandals
Accounting scandals are business scandals which arise from intentional manipulation of financial statements with the disclosure of financial misdeeds by trusted executives of corporations or governments. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets, or underreporting the existence of liabilities; these can be detected either manually, or by the means of deep learning. It involves an employee, account, or corporation itself and is misleading to investors and shareholders.
This type of "creative accounting" can amount to fraud, and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States. Employees who commit accounting fraud at the request of their employers are subject to personal criminal prosecution.
