Financial Reporting Fraud Schemes

Abstract

The financial reporting fraud is still difficult to be detected because of a concealed and sophisticated nature of most fraud schemes, and a lack of effective fraud detection procedure. Fraud schemes have become more complex, sophisticated with the aid of advanced technology, and causes loss and damage to the financial community. A fraud scheme is the way (action) that fraudsters pursue to commit and conceal fraud through misrepresentation or omission of material facts (i.e. misrepresentation or omission of material amount, disclosure, or evidence in the financial reporting). Identifying fraud schemes is an important step for fraud detection. However, the identification of fraud schemes is still a challenging task because fraud schemes have become more complex and sophisticated with the aid of advanced technology and the concealment characteristic of fraud, which causes loss and damage to the financial community. The authoritative literature, SAS 99, 107, and International Standards on Auditing (ISA) 240, 315, and 330 require auditors to assess fraud risk factors (i.e. fraud schemes) and materiality in a client's financial statements. Then, auditors adjust their audit procedures (plan) to address identified fraud risk (schemes) in order to provide reasonable assurance whether the client's financial statements are free of material misstatements.