What is Fraudulent Financial Reporting?

Definition: Fraudulent financial reporting is deliberate distortion of the company's financial statements, aimed at giving investors a false impression of the company's performance and profitability.

Illegal financial reporting is done from the viewpoint of revenue management. Management either changes accounting policies or calculates estimates to improve company performance

Fraud reporting can be managed through external audits, regulations and independent boards. However, ethical corporate culture is the main premise of fair financial reporting.

A senior accountant improves the company's overall performance and in order to convince the investor that the company has no debt and may face the company's debt at the appropriate time, the financial statements company Intentionally manipulate costs and liabilities.

Normally, accountants and analysts will manipulate operating expenses to increase net income while classifying operating expenses as capital on the balance sheet. In both cases, this is a fraudulent financial report as it not only distorts the financial situation of the company but also fraud investors.

Another example is the manipulation of the expected revenue growth rate. For example, the company's profit margin has increased by 8%, but suddenly the profit margin is estimated to increase by 15%.

If the company's fundamentals can not support this forecast, it may mean that that number will be manipulated to obtain the financial statements approved by the board and affect the stock price. However, this shows a lack of ethics and lack of corporate control

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.