THE QUESTION: Discuss the problems of accounting fraud. To what extent can it be detected and controlled?
Accounting fraud is catastrophic to countries’ economy and becomes the issue of concern recently. Accounting fraud is the result of balancing between increasing benefits and decreasing expenses. In addition, accounting fraud, which is also called financial statement fraud, is misreporting with the intention of the firms in order to obtain wrongfully benefit and avoid a detriment (David, 2011). Also, the misreporting uses the manipulation to change the accounting data differencing with practices. It is used to delude the users with special or general purpose. It is not often discovered because of the relation between management and external audit (David, 2011). Therefore, companies may create illegal manners such as financial misreporting to achieve high income. This factor is undermining to economic developing; and it requires to be addressed. Accounting fraud may be detected, whereas it is not easily controlled. This essay will argue three main concepts, namely, the causes of accounting fraud, detection, and controllability. …show more content…
For example, Canadian firms use earnings management to create a report that can avoid losses and earnings decline. They also argue that fraudulent accounting as manipulation to protect the investors. With the effective accounting report, companies may create a high stock and have contracts with other investors. These are the reasons why earnings management causes accounting fraud. Next, Chiefs play a large role in fraudulent accounting. It is claimed that top management such as CEOs and CFOs are people who mainly control accounting fraud (Douglas et al, 2012), which has been proven by two studies. The first study “Fraudulent Financial Reporting: 1998–2007” reported the top executive such as the CEOs or CFOs and top executives often participate in financial statement fraud being 89% of the fraudulent accounting cases. It is also believed that 72% of these cases involve CEOs and 65% of them involve CFOs. Besides, the top executive may threaten the lower level employees in order to conduct the mechanics of fraud strategy. The percentage of chiefs’ participation is always higher than the lower level employees in most firms. The first study also proved that 83% of chief involvement was found in fraud cases and this ratio is increasing. Consequently, auditors only focus …show more content…
Thus, accounting fraud cases were concentrated in Chief of firm (Douglas et al
Accounting fraud is catastrophic to countries’ economy and becomes the issue of concern recently. Accounting fraud is the result of balancing between increasing benefits and decreasing expenses. In addition, accounting fraud, which is also called financial statement fraud, is misreporting with the intention of the firms in order to obtain wrongfully benefit and avoid a detriment (David, 2011). Also, the misreporting uses the manipulation to change the accounting data differencing with practices. It is used to delude the users with special or general purpose. It is not often discovered because of the relation between management and external audit (David, 2011). Therefore, companies may create illegal manners such as financial misreporting to achieve high income. This factor is undermining to economic developing; and it requires to be addressed. Accounting fraud may be detected, whereas it is not easily controlled. This essay will argue three main concepts, namely, the causes of accounting fraud, detection, and controllability. …show more content…
For example, Canadian firms use earnings management to create a report that can avoid losses and earnings decline. They also argue that fraudulent accounting as manipulation to protect the investors. With the effective accounting report, companies may create a high stock and have contracts with other investors. These are the reasons why earnings management causes accounting fraud. Next, Chiefs play a large role in fraudulent accounting. It is claimed that top management such as CEOs and CFOs are people who mainly control accounting fraud (Douglas et al, 2012), which has been proven by two studies. The first study “Fraudulent Financial Reporting: 1998–2007” reported the top executive such as the CEOs or CFOs and top executives often participate in financial statement fraud being 89% of the fraudulent accounting cases. It is also believed that 72% of these cases involve CEOs and 65% of them involve CFOs. Besides, the top executive may threaten the lower level employees in order to conduct the mechanics of fraud strategy. The percentage of chiefs’ participation is always higher than the lower level employees in most firms. The first study also proved that 83% of chief involvement was found in fraud cases and this ratio is increasing. Consequently, auditors only focus …show more content…
Thus, accounting fraud cases were concentrated in Chief of firm (Douglas et al