FinancialStatementFraud - Financial Statement Fraud...

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Financial Statement Fraud Hanna C Quffa
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Name at least three of the five principle financial statement fraud schemes. Pop Quiz
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Financial Statement Fraud Defined Deliberate misstatements or  omissions of amounts or disclosures  of financial statements to deceive  financial statement users,  particularly investors and creditors
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Defining Financial Statement Fraud Falsification, alteration, or manipulation of material financial  records, supporting documents, or business transactions Material intentional omissions or misrepresentations of events,  transactions, accounts, or other significant information from  which financial statements are prepared Deliberate misapplication of accounting principles, policies, and  procedures used to measure, recognize, report, and disclose  economic events and business transactions Intentional omissions of disclosures or presentation of  inadequate disclosures regarding accounting principles and  policies and related financial amounts 
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Costs of Financial Statement Fraud More than 50% of U.S. corporations are victims of fraud  with losses of more than $500,000 (Albrecht & Searcy  2001) Enron lost about $70 billion in market capitalization to  investors, employees, and pensioners Enron, WorldCom, Quest, Global Crossing, and Tyco’s  loss to shareholders was $460 billion (Cotton 2002) Other fraud costs  are legal costs, increased insurance  costs, loss of productivity, adverse impacts on employee  morale, customers’ goodwill, suppliers’ trust, and  negative stock market reactions
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Frequency of Types of Occupational Fraud and Abuse 85.7% 92.7% 12.8% 30.1% 5.1% 7.9% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% Asset Misappropriation Corruption Fraudulent Statements 2002 2004
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Median Loss of Types of Occupational Fraud and Abuse $80,000 $93,000 $530,000 $250,000 $4,250,000 $1,000,000 $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 Asset Misappropriation Corruption Fraudulent Statements 2002 2004
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Effects of Financial Statement Fraud Undermines the reliability, quality, transparency,  and integrity of the financial reporting process Jeopardizes the integrity and objectivity of the  auditing profession, especially auditors and  auditing firms Diminishes the confidence of the capital  markets, as well as market participants, in the  reliability of financial information Makes the capital markets less efficient
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Effects of Financial Statement Fraud Adversely affects the nation’s economic growth  and prosperity Results in huge litigation costs Destroys careers of individuals involved in  financial statement fraud.  Causes bankruptcy or substantial economic  losses by the company engaged in financial  statement fraud
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Effects of Financial Statement Fraud Encourages regulatory intervention Causes devastation in the normal operations 
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