does fraud still exist in financial reporting
A financial reporter recently suggested that over 90% of all companies prepare statements that are in accordance with Generally Accepted Accounting Principles (GAAP). If this statement is true and the assumptions are correct, why is there concern that financial statements may still contain fraudulent information? Can financial information be reported according to GAAP and still be fraudulent?
Just response each post down below #1 to 3
Post #1
There are three bodies that contribute to GAAP in the U.S.: Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA), and Financial Accounting Standards Board (FASB). (Kieso, Weygandt, & Warfield, 2016) The purpose of the GAAP is to have standardization among accounting procedures across the board. Standardization does not necessarily mean accuracy or honesty though. Even with the quoted number of 90%, that leaves 10% that are not only not in accordance, but probably are not accurate either. Fraud can consist of an honest mistake when inputting data, or it can be completely intentional. Taking honest mistakes out of the equation, reporting fraudulent information in statements is a manipulation in numbers. The magic of numbers, and human input, is that you can make them do whatever you want them to do if you have the right, or in this case, wrong, knowledge. Financial statements can be drawn up and submitted with fraudulent information, but still fall under the correct guidelines. Eventually it catches up with the company because these types of activities typically snowball out of control. A small number manipulation turns into a multi-million dollar fraud case in court.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate Accounting; 16th Edition. Various: John Wiley & Sons, Inc.
Post #2
Professor and Class,
The reason there is concern that financial statements may still contain fraudulent information even though the company is in accordance with GAAP is because this information is put in by a person and there is always a chance for a person to be fraudulent. People can have the ability to falsify information to make things look better than they really are. The financial information can only be as good as the person that enters that information is. So this is why financial information can be reported according to GAAP and still be fraudulent, unless somebody checks behind the person that puts in the fraudulent information and catches the wrong information.
Post #3
Hello Professor and class,
As we know, financial fraud continues to be a problem in the business world. Some reasons that financial information may still be inaccurate, even when it is reported per GAAP standards are due to mismanagement and false data reported on financial statements. Sometimes, one person in the company is responsible for too many tasks, which makes it easy for fraudulent behavior to take place. If the same person is handling the payroll, accounts payable/receivable and the firm’s budget, it could be quite effortless for them to enhance numbers so that the financial reports are favorable. Also, having a hardworking, honorable and meticulous CFO for the business will be most important. Once reports are complete, top management must go over and confirm the information reported is valid, rather than just accepting the work of subordinates. The use of different internal and external auditors is extremely vital too, so that the chance for fabricated reports is less likely to occur.
