Introduction:
Corporate fraud is the activities that are not accepted ethically and legally, which are done in a dishonest manner to give the person/firm an advantage by manipulating the firm’s information for their own benefits.

It is also related to adverse selection problem which is a situation in which insiders, with inside information, earn more profits at the expense of outside investors. Similarly, corporate fraud involves deception to make personal/firm profits at the cost of others. Corporate fraud can happen in all organizations, regardless of their size, type (private or public corporation), industry (production or services) in any country.
Corporate fraud could be either for personal gains, where managers use earnings management for their own benefits to maximize their utility while shirking, or to bail out a firm which performance is not up to par.
The likelihood of fraud is increased in economic downturn and recession. As companies downsize in recession, cutbacks and cost control measures will often find employees with less than expected earnings, that will result in lowered utility and shirking.

“Fraud is often explained in terms of the fraud triangle which describes that fraud is most likely to occur when there is an overlap of an incentive or pressure to commit fraud, the opportunity to commit fraud, and arationalisation therefore.

Surveys are regularly carried out to estimate the true scale and cost of fraud to business and society. While findings vary and it is difficult to ascertain the full extent of fraud, all surveys indicate that fraud is prevalent within organisations and remains a serious and costly problem. Fraud may even be increasing due to greater globalisation, more competitive markets, rapid developments in technology and periods of economic difficulty.
Despite the serious risk that fraud presents to business, many organisations still do not have formal systems and procedures in place to prevent, detect and respond to fraud. No system is completely fool proof, but business can take steps to deter fraud and make it much less attractive to commit. Management accountants, whose professional training includes information and systems analysis, have a significant role to play in developing and implementing anti-fraud measures within their organisations.

Activities undertaken by an individual or company that are done in a dishonest or illegal manner, and are designed to give an advantage to the perpetrating individual or company. Corporate fraud schemes go beyond the scope of an employee's stated position, and are marked by their complexity and economic impact on the business, other employees and outside parties.
Corporate fraud can be difficult to prevent and to catch. By creating effective policies, a system of checks and balances and physical security, a company may limit the extent to which fraud can take place. It is considered a white collar crime.
“In order to look like it could borrow $30 for every dollar of its own money, Lehman shifted liabilities off its books at the end of each quarter. Its CPA, Ernst and Young, approved of this fraud against the advice of its own whistle blower, whom Ernst and Young fired.”

http://www.globalresearch.ca/financial-fraud-and-the-economic-crisis/18444

Accounting standard setters implement new accounting standards. IAS 1 is an example of such a standard. It requires that financial statements present fairly the firm’s financial position, results of operations, cash flows, and whether or not the firm is a going concern, in accordance with IFRS and the concepts laid down in the
Framework. If this standard had been in effect at the time of the Philip fraud, it could have motivated the auditor to exercise sufficient diligence that the fraud may have been deterred.

You have no doubt heard of financial reporting disasters such as Enron and WorldCom. Both companies were forced into bankruptcy after massive accounting frauds were revealed. The collapse of investor confidence in financial reporting that followed was a major contributing factor to the economic recession of the early 2000s. More recently, the collapse of the market for asset-backed securities and its repercussions leading to worldwide recession contain serious accounting implications for fair value accounting and consolidation policy.