Essay Sample on Financial Statement Fraud: A Common Business Malpractice

Introduction

In the business world, financial statement fraud is a common financial malpractice that is done by many organizations while trying to hide their exact financial information (Nguyen, 2010). The Association of Certified Fraud Examiners describes financial statement fraud as the manipulation of the information that is used in the preparation of financial statements that are released to the general public and to financial institutions. The main reason why organizations practice financial statement fraud is to hide their highly sensitive financial information, which can be in scrutinizing their performances, leading to some unfavorable decisions being taken against them by the concerned authorities, especially when their financial performance is not very appealing. The aim of this paper is to analyze financial statement fraud in organizations, where this aim will be achieved by answering the questions given below:

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How Information on the Balance Sheet Can Be Manipulated by Finance Professionals

Considering the given videos, it can be seen that the main financial information presented in a balance sheet is the information on assets and liabilities (Khan Academy, 2011). The assets comprise of the available cash and the accounts receivable while the liabilities comprise of the debts. The information in a balance sheet can be manipulated by modifying the financial information presented by the balance sheet, where in most cases, the finance professionals tend to reduce the debts (liabilities) or increase the value of assets to show a company is in a better financial position than its real financial position.

How Information on the Income Statement Can Be Manipulated by Finance Professionals

From the videos, it can be learned that the main financial information presented by an income statement is the revenue earned and the expenses spent. The information on the income statement can be manipulated by giving fake values of revenue or/and expenses where, in most cases, the finance professionals tend to increase the value of revenue or decrease the value of expenses to show that an organization is in a better financial position than it is.

What Are Two Ways in Which an Organization Can Mitigate Financial Fraud?

Two ways that an organization can use to mitigate financial fraud are educating management on this critical issue of financial fraud and its indicators and telling them to avoid it and having regular financial examinations that should mostly be conducted by some external financial experts.

References

Khan Academy. (2011). Balance sheet and income statement relationship | Finance & Capital Markets (video) Retrieved from https://www.youtube.com/watch?v=hZvjH3Az87A&feature=youtu.be Accessed 20 March 2011

Nguyen, K. (2010). Financial statement fraud: Motives, methods, cases, and detection. Universal-Publishers.