Accounting Fraud, And White-Collar Crimes In The United States

Abstract

Time was when fraud used to involve a simple exchange of tangible items, by the perpetrator of fraud, tricking the victims to part with something valuable and in return receive something almost worthless. In recent times, the exponential growth in communication technology and proliferation of computers paved the way for phenomenal upsurge in corporate fraud, while-collar crime, and identity theft. These crimes are costing the country hundreds of billions of dollars every year. The nation is witnessing a peculiar trend in the nature of crimes. While crimes of violence such as murder and rape and property crimes like armed robbery, burglary, and car thefts are on the decline, crimes involving accounting fraud, white-collar crime and embezzlement have shown a meteoric rise. Accounting fraud is defined as knowingly falsifying accounting records in order to boost sales revenue and net income. Accounting fraud is perpetrated by corporations by means of presenting false information, using funds for illegal purposes, overstating revenues, understating expenses, overstating the value of corporate assets, and understating liabilities. Many spectacular corporate scandals such as Enron in the past decade involved large scale accounting fraud. Corporate fraud can have devastating consequences, not just to the investors in the company’s stock but also to tens of thousands of employees who invested their retirement savings in the company’s 401K accounts. Several laws were enacted to prevent corporate fraud with mixed results. Accounting students in this country have been receiving no training at all in the area of prevention and detection of fraud. This paper presents a short history of corporate fraud, the laws enacted to deal with the problem, and the role of codes of ethics for business firms in dealing with corporate fraud.