International Journal of Business and Social Science
Vol. 4 No. 13; October 2013
Cooking the Books: The Case of Malaysian Listed Companies
Fathilatul Zakimi Abdul Hamid Rohami Shafie Zaleha Othman Wan Nordin Wan Hussin Faudziah Hanim Fadzil School of Accountancy Universiti Utara Malaysia Sintok, 06010 Kedah Malaysia.
Cooking the books refers to fraudulent accounting activities undertaken by a business to falsify its financial statements. Thus, the objectives of this study are to investigate what the cooking-the-books activities carried out by businesses consist of, how they conduct them, and what the impact is on the business and its shareholders. The case study sample companies are two Malaysian companies that had
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As stated by the Chairman of the Malaysian Securities Commission: “Investors rely on financial statements as a key medium to evaluate their decisions and therefore we will always be concerned about the quality of information provided in these financial statements. If auditors fail to deliver a quality audit, investors, vulnerability to misstated financial statements and fraudulent financial reporting will continue to remain” (Zarinah Anuar, Chairman, Malaysia Securities Commission, 2007). Furthermore, the issue has drawn a great deal of attention from shareholders, investors, analysts, and regulators, particularly after the largest accounting fraud, which happened in the earlier decades of the twenty-first century, resulted in losses amounting to billions of dollars in market capitalization and shareholders’ funds (Rezaee, 2005). The management in those companies had performed cooking-the-books activities in their financial reports, in which they employed highly sophisticated accounting techniques to window dress their financial performance (e.g. Enron, WorldCom, Global Crossing, etc.) (Lomax, 2003). Cooking-the-books activities are fraudulent accounting activities performed by companies to falsify their financial statements (Lomax, 2003). Synonymous terms are fraudulent financial reporting and earnings management (Zack, 2012) . The activities carried out by these businesses gave investors and