This will be my final edition of the ACFE Cookbook. I'll be working on developing periodic feature articles on hot topics. Since it's the last one, rather than profile specific cases — my usual practice — I'd like to focus on some trends in financial statement fraud I've observed from recent enforcement actions.
In the ACFE's two-day seminar, Financial Statement Fraud, we explain that we can classify the numerous methods of cooking the books into five broad categories:
- Fictitious revenues.
- Timing schemes, involving either revenue or expenses.
- Asset valuation schemes.
- Underreporting of liabilities or expenses.
- Disclosure schemes.
As I've pointed out before, studies — such as the COSO report I've previously cited,
Fraudulent Financial Reporting 1998 – 2007: An Analysis of U.S. Public Companies — have indicated that the majority of financial statement frauds have traditionally involved revenue recognition, usually in the form of either fictitious revenue or early revenue recognition. And many of the cases I've written about in this column have involved manipulation of amounts reported for revenue in the financial statements.
However, times are changing, and the face of financial reporting fraud is also changing. Fraudsters are using more diverse methods (and reasons) to manipulate financial statements.
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