...17 Appendix 18 Bibliography 19 Abstract Financial statement fraud is a very costly type of fraud and has a significant financial impact on the company businesses and also individuals, as well as influence investor confidence in the markets. In this project, our group will going to present on a case study in Financial Statement Fraud by a company that we choose. First of all, in this report we will investigate on our background of the Case Study Company which is MEMS TECHNOLOGY BHD. In the case study, we will determine the current status of the company and how the financial statement fraud will give impact to the organization by referring to the company’s annual report 2009. Hence, in this report we will give some practical guide on the different schemes and components that are used for detection on the Financial Statement Fraud that might be probably incurred in the company annual report 2009. 2.0 Introduction Financial reporting frauds and earnings manipulation have attracted high profile attention recently. The generally accepted definition of the financial statement fraud is the deliberate, misrepresentation, misstatement or omission of financial statement data for the purpose of misleading financial statement users and also creating a false impression of an organization's financial strength. The purpose of this financial statement fraud committed by the public businesses is to maintain the investor confidence...
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...When examining the many different aspects of fraud one common trend is usually found. This is concealment or some sort of alteration of financial statements. Financial statement fraud is usually committed by those individuals that have influence over a company or have some sort of opportunity to do so. These individuals include C-level management, controllers, and anyone else that has to do with the information that is placed in the financial statements. These individuals will make these alterations to meet the demands of the markets, to increase their financial bottom line, to increase stock price allowing for their own portfolios to be enhanced, and to overcome current financial losses (Albrecht, Albrecht, Albrecht, and Zimbelman, 2012, p.360). With financial statement fraud there are numerous ways to commit it. This can be through revenue, inventory, expenses, and even subsidiary reporting. Financial statement crimes over the past decade, and possibly longer, have similar characteristics that individuals should look for and should be aware of the effect of them. According to the text “Fraud Examination” COSO (Committee of Sponsoring Organizations), released a study that showed these traits. The traits are the average fraud lasts two years, improper revenue recognitions, have an average impact of $400 million dollars, CEO involved in 89%, median assets involved are at $100 million, change in auditors, and press coverage leading to dips and/or decreases in stock price (Albrecht...
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...The Role of Power in Financial Statement Fraud Schemes Chad Albrecht • Daniel Holland • Ricardo Malaguen˜o • Simon Dolan • Shay Tzafrir Received: 24 June 2011 / Accepted: 12 December 2013 Springer Science+Business Media Dordrecht 2014 Abstract In this paper, we investigate a large-scale financial statement fraud to better understand the process by which individuals are recruited to participate in financial statement fraud schemes. The case reveals that perpetrators often use power to recruit others to participate in fraudulent acts. To illustrate how power is used, we propose a model, based upon the classical French and Raven taxonomy of power, that explains how one individual influences another individual to participate in financial statement fraud. We also provide propositions for future research. Keywords Financial statement fraud Organizational corruption Recruitment Collusion Power and influence Introduction In recent years, fraud and other forms of unethical behavior in organizations have received significant attention in the business ethics literature (Uddin and Gillet 2002; Elias 2002; Rockness and Rockness 2005; Robison and Santore 2011), investment circles (Pujas 2003; Albrecht et al. 2011), and regulator communities (Farber 2005; Ferrell and Ferrell 2011). Scandals at Enron, WorldCom, Xerox, Quest, Tyco, HealthSouth, and other companies created a loss of confidence in the integrity of the American business (Carson 2003) and even...
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...Financial Statement Fraud Schemes on Apollo Shoes Week Five Ardyth Smith ACC 556 December 12, 2011 Professor Jennifer S. Brown While evaluating Apollo Shoes, there are some areas of concern that are potential fraud schemes. The fraud can lead to the entire collapse/demise of the company if not corrected. These will also affect the share value and investor confidence. An overview of the process of investigation along with recommendations for the company. As with any company, revenue recognition is an important part of operations of a Apollo Shoes. As stated in GAAP standards, revenue generated must be realistic and recognizable. Revenue is recognized when the sale is complete. The sale is approved or paid for and the product is handed to the customer or mailed to the desired location. When reviewing the books for Apollo Shoes, the numbers are inconsistent with the accounts receivable. Confirmation received from customers were in line with the account balances. This raised a flag of concern for revenues being misstated. The difference doesn't appear to make a considerable increase in cash flow, but the issue needs to be addressed and corrected before the difference is larger. This can also be an indication of revenue misstatements. When there are discrepancies in the financial statements obtained from the company and the financial institution, further investigation must be performed. Fixed Assets There are some common forms of fraud in relation to fixed...
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...+ - ACC 556 – Forensic Accounting Week Four Team C Reflections Week five material focused on the impact accounting principles have on detecting fraud as well as the financial statement fraud schemes that have been committed in recent years. Helen found course materials and discussion on financial statement fraud gave me a pause. I was aware of the fact that it is possible to manipulate financial results and make operations appear successful to lenders and investors, while quite the opposite may just as well be true, but I did not realize how wide spread is the problem (746 cases being investigated by FBI as we speak which means there are a lot more out there yet to be uncovered or will never be uncovered or prosecuted). Stories of companies overstating revenues by millions and billions of dollars seem to be common nowadays. I would think that if not for SEC oversight, even more companies would commit financial statement fraud. If I were an investor or a lender I would certainly want to study financials and accompanying notes and disclosures to financial statements of the company I am considering to invest in, I would compare their ratios between fiscal years (especially changes in days in accounts payable and receivables, changes in inventory versus sales, changes in reserves for doubtful accounts and obsolete inventory), I would also compare their performance with other companies in their field. Any sudden growth or performance that meets analyst’s forecasts is now would...
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...prospect. Another area this papered covered was the ways was the ways in which investigating the organization and its industry would help determine the value Bre-X’s gold prospect as well as the ways in which investigating the financial results and operating characteristics would help in the determination of the of the company’s value. Lastly this paper covered some of the perpetrators motivations to commit fraud. Fraudulent Activities of Bre-X Minerals Company “Financial statements fraud involves the intentional publishing of false information in any portion of a financial statement (Association of Certified Fraud Examiners).” The Bre-X Minerals Case, provided false information that became detrimental to investors. The false information that harmed investors led to the analysis of how investigating management and directors would help in the determination of the company’s value of gold prospect’s. This also led to the ways in which investigating the company’s relationship with other entities, the organization and its industry and the ways the financial results and operating characteristics help determine the value of Bre-X gold prospect. In addition an examination of the perpetrators motivations to commit fraud was evaluated. Management plays a vital and important role in a business. However, if management is involved in fraudulent activities management can cause more harm than good. In the Bre-X Minerals Case, investigating...
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...of people lives and will do so , if they continue to commit fraud when it comes to money and transaction.. Financial statement fraud is a deliberate attempt by corporations to deceive or mislead users of published financial statements, especially investors and creditors, by preparing and disseminating materially misstated financial statements’ (Rezaee, 2005:279). An extensive literature on fraud exists (e.g. Apostolou et al, 2000; Rezaee, 2005; Ozkul and Pamukcu, 2012, etc.). Jointly, the litera-ture show some consensus that fraud may involve: (1) the alteration or manipulation of material financial records, supporting documents, or business transactions; (2) intentional misstatements, omissions, or misrepresentation of events, transactions, accounts or other significant information from which financial statements are prepared; (3) deliberate misapplication and misinterpretation of accounting standards, principles, policies and methods used to measure, recognize, and report economic events and business transactions; Fraud schemes vary in scope, context and with the position of the perpetrators within the firm. Some types of fraud are specific to some industries due to industry related incentives (e.g. Calavita et al, 1997). For example, securities and investment fraud is common to the banking and financial services industry. Other types of fraud are concentrated within top and middle management levels (e...
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...99; SAS No. 113. See section 9333 for interpretations of this section. Effective for audits of financial statements for periods ending on or after June 30, 1998, unless otherwise indicated. Introduction .01 This section establishes a requirement that the independent auditor obtain written representations from management as a part of an audit of financial statements performed in accordance with generally accepted auditing standards and provides guidance concerning the representations to be obtained. Reliance on Management Representations .02 During an audit, management makes many representations to the auditor, both oral and written, in response to specific inquiries or through the financial statements. Such representations from management are part of the audit evidence the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit. Written representations from management ordinarily confirm representations explicitly or implicitly given to the auditor, indicate and document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding concerning the matters that are the subject of the representations. [Revised, March 2006, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 105.]1 .03 The auditor obtains written representations from management...
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...Reference 16 a) As the auditor, describe the concerns you have that may suggest fraud is occurring in the company. The Fraud Triangle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley The fraud triangle originated from Donald Cressey's hypothesis (Donald R. Cressey, 1973). The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud (acfe, n.d.). Type of fraud: Management fraud Fraudulent financial reporting Misappropriation of assets. (Arens/Elder/Beasley, 2012) ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley At the types of fraud, usually the Management fraud are including fraudulent financial reporting and the misappropriation of assets. Why the company will occurs the fraud, because the employees and managers have incentive, opportunities and attitude. The fraud specific fraud risk area are including revenue and accounts receivable fraud risk, inventory, purchases and other area Management fraud Management fraud, as the name suggests, is perpetrated by the top management of a company who has the intention of misleading investors (Dutta, 2013). Usually management fraud by accounting manipulation and misstates the...
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...the parties. The main reason for this is that they failed to correctly audit the assets and financial position of Enron resulting in all stakeholders having no clue about the forthcoming collapse of Enron. This resulted in the stakeholders facing a very critical condition or a phase where in they were not sure if they would be able to recover their investments and debts or not. The auditing process has revealed several issues and findings of problems within the accounting system and the same have been discussed as the primary areas of exposure, areas of possible mishandling of accounts receivable, possible mishandling in other accounting operations, Cause of the problems and the impact of the deficiency findings. How Enron’s harsh Performance Review Committee (PRC) could have aided company executives in committing the fraud? The auditors were required to consider the shortcomings in the financial statements of the firm and also analyze the frauds and imbalances in the financial statements in depth. Having failed to do this jeopardized the position of the investors as well as other stakeholders. It was clearly a company riddled with fraud and excess and its conduct drove it into bankruptcy. Analysts argue that individual behavior was not at the core of the firm's problems (Arens,Elder, Bensley., 2011). Some factors that could explain why the falsifying of financial statements is occurring so frequently? Lack of proper internal controls and maintenance of records seem...
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...(FCB) is an air freight services and ground handling company. Its company’s operations cover Asian Pacific region including China, Japan, Thailand, Singapore and many more. Their main customers are United Parcel Services (UPS), City Link and Nationwide Express. The main shareholder for FCB is Bangor Sdn Bhd which is part of Miri Group represented by 26.5% of the company interest. Kencana & Associates is the auditor company that audit FCB’s account. The leader of the auditors is Mr Chuah Mun Soong. The auditing team found some irregularities in accounting record of FCB. There are two parties which Mr Chuah has to report, they are his superior, Mr Keong Chee Wah and FCB Audit Committee. However, Mr Chuah concerns that FCB might have a fraud due to the past experience such as Media Com and Blue Vital. 2.0 The Root Cause of the Problems As per our discussion about this case study, we managed to find out several root cause of the problems. 2.1 Rising of Oil Price The first root cause is the rising in oil price in the year 2005. In the year 2005, there was an international crisis occurred with the exceptional increase in oil prices. The hike started in mid-2004 at US$40 per barrel but eventually, the increase continued to stages of US$50, US$60, US$65, US$70 and US$80 per barrel. The price hike in fuel surcharges drastically affected the freight forwarding industry significantly because of its reliance on fuel for operations. This rising give huge impact on operation...
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...ordinary audit of financial statements is the expression of an opinion on: | | the fairness of the financial statements | | CORRECT | | | the accuracy of the financial statements | | | | | the accuracy of the annual report | | | | | the balance sheet and income statement | | | 2. The auditor's best defense when material misstatements are not uncovered is to have conducted the audit: | | in accordance with auditing standards | | CORRECT | | | as effectively and as reasonably possible | | | | | in a timely manner | | | | | only after an adequate investigation of the management team | | | | | | | | | | | | | 3. Which of the following statements is most correct regarding errors and fraud? | | An error is unintentional, whereas fraud is intentional. | | CORRECT | | | Fraud occurs more often than errors in financial statements. | | | | | Errors are always fraud and fraud is always errors. | | | | | Auditors have more responsibility for finding fraud than errors. | | | 4. Which of the following statements is true of a public company's financial statements? | | Sarbanes-Oxley requires only the CEO to certify the financial statements. | | | | | Sarbanes-Oxley requires only the CFO to certify the financial statements. | | | ...
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...reconciliation of supporting documents versus sources, with very little effort needed. Federal regulators were provided with data that revealed the corrupt practices of high-profile companies and their CEOs. Their bankruptcies became inevitable as the Securities and Exchange Commission (SEC) and financial analysts began to see the signs of irregularities among numerous companies. When the SEC ordered the restatement of their financial reports in accordance with the GAAP rules, it turned out that these companies were mostly founded by inflated revenues and negative financial conditions. Short after, companies reputations and financial credibility began break like bubbles, in the wake of the ensuing investigations. The result of these action caused investors once again lost their trust and confidence in America’s publicly traded companies, which eventually led to more bankruptcies. As a result, multitudes became jobless, and the trend went from bad to worse throughout the decade. these accounting anomalies was the heart of all that frauds. The accountancy profession and the role it plays came into focus. Accountants have helped in misleading the public by certifying and endorsing that the financial reports of fraudulent companies were all true and 100% correct. Investors placed their faith in the accompanying audit reports, which...
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...What is fraud? Fraud is defined as “the intentional false representation or concealment of a material fact for the purpose of inducing another to act upon it to his or her injury” as defined by the American Institute of Certified Public Accountants. In other words, fraud is gaining an unfair advantage over another person. Legally for an act to be fraudulent it has to include the following: 1- A false statement, misrepresentation, or a false disclosure. 2- A material fact, which is something that drives a person to act 3- An intent to deceive others 4- A justifiable reliance as to why he/she is doing it 5- An injury or loss suffered by the victim There are many words used to describe fraud: Fraud, con, swindle, extortion, sham, double-cross,...
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...manipulation of financial statements also affects employees. It has the power to put employees out of work once the fraud is exposed or collapses. It also has the power to enrich employees – mostly those involved in the fraud, but potentially those who are not. Good financial results (actual or fabricated) can be linked to promotions, raises, enhanced benefit packages, bonuses, and the value of stock option awards. Financial statement fraud will cause shareholders to overpay for their investment in the company and they will get less value for their money than they are aware. They may lose part or all of their investment if the company ultimately fails or has to go through some sort of reorganization in order to remain viable. Shareholders also lose the opportunity to invest their money in other companies which may have better actual financial results or which may be more honest in their operations. Banks lose money, which affects other bank customers who ultimately make up for those losses and affects the bank's investors. Creditors can lose large sums of money, which may not have been risked if the creditors knew the true financial condition of the company. If enough financial statement frauds occur, or if the frauds are large enough, there are wide-reaching effects for other companies. Consider the case of the Sarbanes-Oxley Act of 2002. The legislation followed the collapse of some large public companies with executives who engaged in significant financial statement fraud. This legislation...
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