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Financial Statement Errors

In: Business and Management

Submitted By thelma32003
Words 383
Pages 2
Financial statement fraud includes the deliberate misstatement of numbers by either booking false accounting entries or deliberately misapplying accounting rules. There are common ways to carry out a financial manipulation and fraud such as overstatement of revenues, understatement of expenses, overstatement of assets, understatement of liabilities, improper use of reserves, mischaracterization as one-time expenses, misapplication of accounting rules, misrepresentation or omission of information, etc. Financial statement and reporting manipulation or fraud is the most expensive type of fraud perpetrated by an employee, with a median cost of $2 million per scheme.

The spate of corporate accounting scandals over the past years has led to significant losses for investors, triggered a series of corporate governance reforms and prompted efforts to identify the underlying causes of these scandals. For years, the perpetrators have been singled out to solely be those in upper management (i.e. CEOs) because they are the ones with the access and the influence to manipulate financial statements. However, things have begun to shift and the blame is equally being apportioned to CEOs as well as the CFOs, who oversee financial reporting, of companies.

It has been researched and understood for many years now that CEOs or executive teams as whole, faced lucrative equity incentives with financial manipulation of firms, such as more valuable stock options, profitable job promotions, increased performance bonuses, etc. The role & incentives of CFOs, however, had been ignored. CFOs may initiate accounting manipulations for immediate personal financial gain, as seen in their equity compensation, although not as to a great extent as that of CEOs. On the other hand, CFOs manipulate the financial reports under the pressure from CEOs. The latter scenario is supported by the fact that

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