Examining financial statement fraud: causes, warning signs, and the future

Abstract

For the world, 2002 was a big year for financial fraud. Bankruptcy followed bankruptcy starting with Enron succeeded by Tyco and WorldCom. While there are many different types of fraud, financial statement fraud represents the largest amount of dollar loss to fraudulent activities. With revenue recognition representing over half of financial statement fraud schemes, most fraud schemes are initiated by upper management with complicity from others like employees and external entities. With people involved at different levels, the signs of fraud are disguised making fraud schemes incredibly difficult to detect. Fortunately, there are warning signs present that analysts and auditors can use to determine a company’s financial stability. However, neither of these tools is easy to use without disclosure of pertinent information from management. Certain information relating to factors and conditions within the company are imperative to giving their financial statements into context. Utilising these signs along with environment inside the company shows the future of the company as a going concern.