Fraudulent Financial Reporting

Unauthorized financial reporting is a deliberate misstatement or omission of financial accounting information designed to deceive investors.

Reasons for fraudulent financial reporting include (a) pressure from owners, creditors and the entire market, (b) opportunities for fraud (because no emphasis is placed on corporate ethics), and (c) incentives and benefits Conflict is included.

Control measures to prevent fraudulent financial reporting include external audits, independent boards, active regulators, vigilance against capital markets and overall ethical corporate culture.

Ten Percent Inc. is a company founded in Juba to assemble electronic products in 1997. The company has a 10-year history and the net margin has improved by more than 10%. As of the third quarter of 2007, its revenue was only 6% higher. Analysts still believe that the company will achieve its 10% goal. The company's chief executive officer owns 500,000 shares of the company. In just one week from the end of fiscal 2007, the CFO created a draft of the income statement, but it only increased by 8%. The CEO and CFO concluded that this would result in a 15% reduction in market capitalization. If the CFO receives growth goals, you have the right to receive a 10% bonus. The Chief Executive Officer can cancel the unrealized revenue of $ 200 million in CFO and convince him to treat it as income earnings. As a result, net profit margin increased by 11%. Because the directors are not familiar with accounting principles, management can obtain financial statements approved by the Board of Directors.

The above example is an example of fraudulent financial reporting, as management misrepresents revenue and profits and eventually displays assets and false income.

Factors that cause misstatements include pressure from capital markets, compensation systems, fairness of CEOs, poor corporate culture, and lack of effective corporate governance.

Fraudulent financial reporting is different from other causes of financial statements that cause significant misunderstandings, such as unintentional errors. The Committee also distinguishes fraudulent financial reporting from other corporate misconduct such as fraud which does not necessarily result in serious inaccuracies in employee corruption, environmental or product safety regulations, and financial statements To do. 1

This report includes an outline of fraud reporting analysis conducted by the National Fraudulent Financial Reporting Committee (known as the Tredeway Commission) in the mid-1980s and recommendations to reduce such fraud incidence It contains. The report emphasizes that prevention and early detection of fraudulent financial reporting must start with an entity that prepares financial reports. Committee recommendations on strengthening deterrence include new SEC sanctions, greater criminal prosecution, improvements in regulations of public accounting experts, adequate SEC resources, improved federal supervision to financial institutions, and supervision of the state legislature Including improvements. In order to improve the effectiveness of the financial statements audit, recommendations were also made to standard setters, including the Auditing Standards Council of the American Institute of Certified Public Accountants. The report contains over 150 recommendations

Recommendation: Criminal prosecution of fraudulent financial report cases should be given higher priority. The US Securities and Exchange Commission should implement an aggressive program through education and aid to government officials with criminal prosecution power to promote criminal prosecution of fraudulent financial report cases. Financial reporting is a major problem that requires attention of more supporters, including regulators and law enforcement agencies. In an informal survey of the Committee of the White Collar Crime Committee of the Criminal Justice Department of the American Bar Association, most respondents agreed to this view.