Chapter 11- Fraud and FS.docx - I A 1 2 3 B 1 Fraud in Financial Statements Who commits financial statement fraud Senior management Mid and lower-level

Chapter 11- Fraud and FS.docx - I A 1 2 3 B 1 Fraud in...

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I.Fraud in Financial StatementsA.Who commits financial statement fraud?1.Senior management2.Mid- and lower-level employees3.Organized criminalsB.Why do people commit financial statement fraud?1.To conceal true business performancea.Overstate performancei.To meet or exceed earnings or revenue growth expectations of stock market analystsii.To comply with loan covenantsiii.To increase the amount of financing available from asset-based loansiv.To meet a lender’s criteria for granting/extending loan facilitiesv.To meet corporate performance criteria set by the parent companyvi.To meet personal performance criteriavii.To trigger performance-related compensation or earn-out paymentsviii.To support the stock price in anticipation of a merger, acquisition, or sale of personal stockholdingix.To show a pattern of growth to support a planned securities offering or sale of the businessb.Understate performancei.To defer “surplus” earnings to the next accounting periodii.To take all possible write-offs in one “big bath” now so future earnings will be consistently higheriii.To reduce expectations now so future growth will be better perceived and rewardediv.To preserve a trend of consistent growthv.To reduce the value of an owner-managed business for purposes
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