Misrepresentation of Financial Statements: An Accounting Fraud Case from Turkey

Abstract

Purpose – The objective of this paper is to show to the public in general and auditors in particular that in the absence of control there is always a risk of fraud. Fraud can be in various forms. Larceny may be the most obvious case of fraud, but fraud may be done in many other ways too. Balance sheet fraud or financial statements fraud is a broader issue, it is far fletched than a few hundred dollars of a larceny case. In financial statement fraud the deep down effect may be millions or billions of dollars.Design – The paper has been designed based on a fraud theory. The author has observed the implications of a possible fraud in a real audit case. The fraud theory has been tested through on financial analysis and audit tests. The theory then been revised and the existence of a financial statement fraud has been proven.Findings –The paper explores that banks and group companies controlled by unreliable owners can lead to misuse of public's funds in accordance with the directives of the owner. Public's money can be transferred to other group companies in an illegal manner-in excessive amounts and never returned to the bank by means of applying different accounting fraud techniques.Practical implications – Auditors, who may audit group companies that include a bank or banks with deposit receiving and lending rights should pay attention to the transactions between the group's bank and the other group companies. The lending may be excessive in amount and/or never paid back and the financial statements would be misrepresented covering various fraud schemes.Originality – The case that the paper deals with reflects the author's own audit experiences. The names of the companies have been changed but not the essence of the events. From this perspective it sheds light onto the path of an auditor who happens to be in a similar situation.