Examples Of Fraudulent Financial Reporting

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Fraudulent Financial Reporting is where there is an intention to misstate or omit amounts or disclosures with the intent to deceive users. Two examples of fraudulent financial reporting are accelerating the timing of recording sales revenue to increased reported sales and earnings, and recording expenses as fixed assets to increase earnings. Misappropriation of asset is a fraud that involves the theft of an entity’s asset. There are three (3) conditions that are typically present when there is fraudulent financial reporting the misappropriation of assets. These conditions are referred to as the fraud triangle. 1. Pressure/Incentive 2. Opportunity 3. Rationalization Pressure…show more content…
A company internal environment can also pose an opportunity for fraud which is influence by the organization culture and the effectiveness of the company organization internal controls. A strong internal control can limit the possibilities for manipulation of results or for fraudulent financial transactions. There was various opportunity for fraudulent financial reporting with The Two Towers Bank. Mr. GAN Dalf who was the CEO of the bank was also the chairman of the audit committee, there was no independent member on the audit committee. Mr. GAN Dalf personally hired Fred Bagg who was the financial expert of the audit committee. This can lead to both colluding to cover up fraudulent financial report that might be present. There was also an understaffed internal audit department and also an ineffective internal controls over the revenue of the bank, this made it possible for Fred bagg to commit fraud so he will be able to gain his…show more content…
When there is an increase pressure or incentive individuals are more likely to rationalize for fraudulent actions. Also when an individual is pressure to save jobs or to keep a company afloat there is likely a rationalization of a fraud. If employees are aware of the violations of the company’s ethical standards and know that any breach from these standards will not be tolerated and the senior management is following by these strict ethical standards, fraudulent behavior becomes difficult to rationalize. Mr. GAN Dalf the CEO of The Two Towers Bank personally hired Fred Bagg for the post of Chief Financial Officer, despite that fact that Fred Bagg does not possess the necessary qualification for the post. Fred Bagg on the other hand can argue that he was hired despite the CEO knowing that he thus not have the requisite skills to produce proper financial statements, and to ensure that the financial reports is free from all misstatements. Thus could be used to rationalize the fraud that exists within the reports. Conditions for Misappropriation of Asset Asset Misappropriation Fraud is one where an employee steal or misuse an organization resources. Asset of the organization are taken to directly benefit the individual who committed the fraud. Misappropriation of asset may occur under different circumstances: 1. Before they are recorded

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