Académique Documents
Professionnel Documents
Culture Documents
Prepared by
Nour Ali
Al Mohanad
Emad
Youstina Kout
Nourhan El-
Agizy
Mirna Ismael
Supervised By:
Professor Zakaria Farid
Professor of Accounting
Ain Shams University
Spring 2015
Not to forget all the staff of Accounting and Teaching assistants who
has provided us with assistance through our academic studies in the
university and to everyone who might find our project useful.
We designed this page to give our thanks for those who shaped
significant differences in our knowledge, personality and attitude and we
wish all readers to have the benefit from this humble work of us.
Page 2 of 100
Table of Content
Pages
1. Dedication and Acknowledgment
2
2. Table of Content
3
3. Chapter 1 (Introduction to Fraud in Financial Statements)
4 - 12
4. Chapter 2 (Literature Review)
13 - 23
5. Chapter 3 (Reasons and Effects of Fraud in Financial Statements)
24 - 42
6. Chapter 4 (Indicators and ways to prevent Fraud in Financial Statements)
43 - 65
7. Chapter 5 (Case Study and Application in Preventing Fraud in Financial
Statements) 66 - 84
8. Chapter 6 (Conclusion)
85 - 86
9. References
87 -
92
Page 3 of 100
Chapter 1
Introduction to Fraud in Financial Statements
I.
Introduction:
Nowadays, Fraud in financial statements becomes mutual as it causes
a serious problem for everyone who is interested users of financial data from
any company, whether to invest in, a competitor, or financial institutions
etc. Fraud has a direct impact on business as companies who commit fraud
shows a manipulation in their financial statement in order to differentiate
themselves from others. Fraud can be caused by many factors to meet
expectations of the owners or creditors, or to obtain more favorable credit
terms, to meet performance criteria set by related companies, or to maintain
an impression of constant economic growth of the company. Not all these are
justifications to commit fraud in financial statements, as fraud is extremely
disastrous to any company, yet it can be easily identified and prevented
through auditing procedures or analyzing the financial statements, which is
very essential to stop this insalubrious act to any company, to its
stakeholders, and to the whole community.
II.
Background:
1. Financial Statements:
A companys financial statements give a lot of financial information
that business owners and creditors use to estimate a companys financial
Page 4 of 100
financial
statements
focus
on
various
fields
of
financial
Financial statements tell you the performance and the value (sort
of
through
b.
Page 6 of 100
c.
Cash flow statement: it shows the cash generated and used during a
specific period of time. It consists from three main categories.
Operating activities converts the items reported on the income
statement from accrual basis of accounting to cash Basis, investing
activities (reports the purchases and sale of long-term investments and
Page 7 of 100
3.
Users
of
the
Financial Statements:
There are internal and external users of financial statements:
Page 8 of 100
a.
b.
4. Accounting Fraud:
Accounting Fraud is one of the major obstacles, which the
companies face. It is a type of manipulation in the financial statements in
Page 9 of 100
Creative
Accounting
On
The
Balance
Sheet
at
Page 10 of 100
b.
c.
In
the
Indian
IT
services
and
back-office
accounting
firm,
the company's board of directors. Raju and his brother charged with
breach of trust, conspiracy, cheating and falsification of records. They
were released after the Central Bureau of Investigation failed to file
charges on time. In 2011, Ramalinga Raju's wife published a book of his
existentialist, free-verse poetry.
III.
Project Objective:
The objective of this project is to:
1. Examine the association between fraud in financial statements and
other variables: Employee salary, the economic situation of the
country, and rules and obligations of the organization through
conducting a survey and collecting opinions.
2. Analyzing manufacturing company financial statements in a certain
area to identify a margin of fraud that has occurred in their financial
statements.
IV.
Research Methodology:
The current research is an applied research. Different types of
qualitative methodologies will be used in order to find out the causes,
characteristics, the consequences and the lessons learned from the fraud
in the financial statements.
Data collection of the research depends on the following:
1. Questionnaire.
2. Professional Interview.
3. Case Study.
The questionnaire is an important tool to understand and collect
different opinions from different cultures and environments about fraud in
financial statements and understand the impact of fraud in other variables.
The professional interview will be very beneficial in order to get in a
direct contact with a professional who has been in a company that
committed a fraudulent act and understand his opinion about fraud and how
to prevent it.
Page 12 of 100
The case study is one of the most important tools in this project. It will
show the margin of fraud in a financial statement providing that the usage of
financial statements analysis ratios is necessary.
V.
industries.
That
is
because
such
industry
has
many
Chapter 2
Literature Review
Page 13 of 100
statement
factors
are
useful
in
model
which
frequent
over
the
last
few
years
Falsifying
financial
the
discovery
was
split
between
incumbent
and
new
management''.
Fourteen companies are analyzed in the research nine US and five
European. The nine US companies were selected following a search of the
SECs Accounting and Auditing Enforcement Releases (AAER) relating to
violations of Rule 10-b of the Securities and Exchange Act 1934 and
Section 17(a) of the Securities Act 1933.These are the main rules relating
to
financial
statement
fraud. The
AAER
in
tax
administration
and
its
effect
on
financial
statements.
The draft project document does not fully integrate and analyze aspects
related to anti-corruption and how aspects related to anti-corruption could be
included in the different activities proposed in the project and/or in the risk
assessment. The main components included in the project are (1) taxpayer
services (2) tax audit (3) efficiency in management (4) tax statistics.
He stated that in his summary '' Revenue administration is often
ranked as one of the poorest performing public sectors in terms of
corruption and, as Transparency Internationals latest Global Corruption
Barometer (TI 2009) illustrate, corruption continues to affect the sector in
2009. This sector is very important to a states development and
economic health as it significantly affects its capacity to spend on public
projects and programs, thus making problems of inefficiency and revenue
leaking especially damaging. Corruption in tax administration also
dissuades honest taxpayers by rendering them less competitive and
making the black-market a more attractive alternative. Tax administration
is an attractive sector for corruption to take place as the opportunities and
incentives to engage in illicit activity are numerous. The complexity of tax
laws, the high discretionary powers of tax officials, the low cost of
punishment are only some factors creating opportunities for corruption in
revenue administration''
The author used the qualitative method in this research, which is used
to reveal a target audiences range of behavior and the perceptions that
drive it with reference to specific topics or issues (tax corruption).
The author got most of his data from the internet and from several
books and by reviewing many on fraud financial statements.
He used many of samples as a case study for him; the Mexican
experience, The Bulgarian experience, The Tanzanian experience and The
Bolivian experience.
Page 17 of 100
of
company's
performance.
WorldCom,
They stated, Financial reporting frauds are a serious threat for the
investors confidence in the financial information. The side effects of the
financial frauds are affecting the integrity, quality and confidence in
published financial reporting. Criminals who carry out such fraud, from
management to employees, must understand that the interference of
records is a crime that will be judged. Qualitative financial reporting,
including reliable financial statements without mistakes, can be made
when there is well-planned corporate governance. Although participants
in corporate governance responsibilities vary depending on their level of
preparation and on the presentation form of financial reporting, a welldefined working relationship among these participants should reduce the
probability of financial fraud.
After conducting their research they concluded by saying that
Although the achievement of financial reporting by so-called "fraudulent
scheme" refers to short-term achievement of "management earnings ",
they may draw the following consequences in time: undermines the
credibility, quality, transparency and integrity of financial reporting
process;
endangers
the
integrity
and
objectivity
of
the
auditing
of
technology
within
the
corporate
financial
data
financial
information,
the
likelihood
of
fraudulent
financial
aid in financial accounting fraud detection, since dealing with the large
data volumes and complexities of financial data are big challenges for
forensic accounting. This paper presents a comprehensive review of the
literature on the application of data mining techniques for the detection of
financial accounting fraud and proposes a framework for data mining
techniques based accounting fraud detection. The systematic and
comprehensive literature review of the data mining techniques applicable
to financial accounting fraud detection may provide a foundation to future
research in this field. The findings of this review show that data mining
techniques like logistic models, neural networks, Bayesian belief network,
and decision trees have been applied most extensively to provide primary
solutions to the problems inherent in the detection and classification of
fraudulent data.
10.
Statement Fraud .
They stated that Financial statement fraud has reached the epidemic
proportion globally. Recently, financial statement fraud has dominated the
corporate news-causing debacle at number of companies worldwide. In
the wake of failure of many organizations, there is a dire need of
prevention and detection of financial statement fraud. Prevention of
financial statement fraud is a measure to stop its occurrence initially
whereas detection means the identification of such fraud as soon as
possible. Fraud detection is required only if prevention has failed.
Therefore, a continuous fraud detection mechanism should be in place
because management may be unaware about the failure of prevention
mechanism. In this paper we propose a data mining framework for
prevention and detection of financial statement fraud.
Page 22 of 100
normalization
of
the
input
variables
and
resolving
represents
enormous
cost
to
our
economy.
The
deliberate
misstatement of numbers in the accounting books with the help of wellplanned scheme by an intelligent squad of knowledgeable perpetrators in
order to deceive the capital market participants is termed as financial
statement fraud. In order to reduce fraud risk which comprehends both
detection and prevention of financial statement fraud, this paper
implements descriptive data mining techniques such as Association rules
and clustering as opposed to predictive data mining techniques used in
the literature. Each of these techniques is applied on dataset obtained
from financial statements namely balance sheet, income statement and
cash flow statement of 114 companies.
They collected data about the 114 companies in their research coming
from www.wikinvest.com In order to identify companies accused of
financial statement fraud, Accounting and Auditing Enforcement Releases
published by S.E.C. (U.S. Securities and Exchange Commission) between
2007 and 2012, they also have removed all incidents of violation of the
Foreign Corrupt Practices Act (FCPA) from their sample because FCPA
prohibits the practice of bribing foreign officials and most of the AAERs
issued because of FCPA do not reflect which financial statement, balance
sheet or income statement, is affected.
Page 23 of 100
corporate governance and fraud detection. This case study focuses on the
impact of Japanese culture on the corporate culture of The Olympus
Corporation, and how that corporate culture resulted in financial
statement fraud.
Chapter 3
Reasons and Effects of Fraud in Financial Statements
I.
gifts,
double
dealing,
under-the-table
transactions,
1.
The over statements means that recording the assets and the
revenues of the company more than its main value in order to show that
the company is gaining profits to raise the price of its stocks in the stock
market. As an example if an asset is overstated, the balance sheet shows
assets as higher as they should be. For example, a bank might value a
mortgage-backed security at $1M when it properly should be evaluated at
$750K. There are also many types of the over statements including timing
differences,
fictitious
revenues,
cancelled
liabilities
and
expenses,
reason for the top management they do the fictitious revenue in order to
prove that for the business owners that they are performing well so they
keep their position. For the person who is concerned about the matter he
should compare the sales invoices with the real one to be sure that
everything is okay.
Colby also mentioned that '' there are several questions should the
examiner ask himself such as: Can sales be confirmed with the
customers? Were invoices at year end unusually high? Were there any
sales to related parties in the last quarter? Related-party transactions are
much more prone to manipulation. Have any documents been altered or
forgeted and are they originals or photocopies? If management has
created fictitious sales, they usually have to create phony documents
(type of business papers which are fabricated to proof a kind of a fraud as
it is real) to support those sales or alter legitimate documents to reflect
the increased sales amount''.
We should also examine the latest transactions and adjustments
because they have a big potential possibility of manipulation. Making
gross margin ratio analysis (a profitability ratio that compares the gross
margin of a business to the net sales, gross margin ratio = gross margin /
net sales) will help also to prevent the fictitious revenues. Colby says that
this ratio will often be out of line with other periods if this is the first year
fictitious revenues were created. One of the most known cases of fictitious
revenues is Cendant Corp.
Jamal Ahmad, David Jansen and Jonny J. Frank stated that '' Created
$35 million in inappropriate restructuring reserves in 1996 that were
reversed in 1997 to inflate income thus creating the illusion of a rapid
turnaround. In 1997, reported over $70 million of revenue from bill and
hold sales, channel stuffing and other inappropriate accounting practices.
That's resulted in restating 1997 income from $109 million to $38 million.
CEO charged with violating federal securities laws by misrepresenting
Page 29 of 100
capitalization policies. Examine changes in depreciable assets lives. Recompute the depreciation and amortization for all assets. One of the most
known cases of timing differences is Xerox company which Overstated
revenue for over 4 years by accelerating the recognition of $3 billion in
revenue and inflating earnings by about $1.5 billion. That's resulted in Co.
agreed to pay $10 million in fines and restate its income for the years
1997-2000.
4.
the
cut-off
method
including
vendors
invoices,
receiving
or expenses
Page 31 of 100
5.
6.
7.
Manipulating
in
valuation.
Colby said that '' Inventory is also typically dispensed from several
locations and is normally comprised of a large number of items. This
makes it easier to create improper estimates for obsolete or slow-moving
goods, to manipulate physical inventory counts, to create fictitious
inventory, to fail to record the purchase of inventory, and for improper
inventory capitalization ''.
Detecting inventory fraud needs the auditor to be more experienced.
He can detect it by using several methods, Identify changes in
Page 32 of 100
organization operations that might have led to the neglected or slowmoving inventory. Watch the inventory itself. Examine the inventory detail
in purchase and other inventory papers. Inventory turnover ratio (A ratio
showing how many times a company's inventory is sold and replaced over
a period, inventory turnover = sales / inventory) analysis to determine if
the results are what is expected. Any variances should be followed up for
explanation. One of the most noticeable red flags of unrecorded inventory
is that the cost of goods sold is too low in relation to recorded revenues.
This can be detected by using gross margin ratio analysis. The gross
margin will typically be too high. Search for unrecorded liabilities that
relate to inventory purchases and perform tracing from physical inventory
count to inventory records.
8.
receivable
with
the
purchasers.
Calculate
the
accounts
ways.
These
include
booking
Page 33 of 100
fictitious
fixed
assets,
misrepresenting
the
asset
value,
improper
capitalization,
or
the
misclassification of assets.
Colby stated that '' The most common offset account when booking
fictitious assets is owners equity. Land and building flips between related
parties are often used to increase the value of the assets. Misclassification
or the improper capitalization of fixed assets occurs when non- asset
items are included in the fixed asset total''.
The
second
type
of
the
accounting
fraud
is
the
12.
13.
Improper
asset
minimizing the assets in the balance sheet of a company to pay low taxes.
As we said before any type of lowering the taxes is called tax evasion,
Page 36 of 100
the
receivables
they
should
examine
unusual
sales
and
receivable
with
the
purchasers.
Calculate
the
accounts
16.
Page 37 of 100
II.
Wesley Snipes: He failed to file tax returns between 1999 and 2006,
and prosecutors claimed that during those years, $38 million worth of
income had gone unreported. Snipes justified the nonpayment in a 2006
statement in which he claimed he was a nonresident foreign of the
United States. In reality, he was born in Florida. He also stated the U.S.
government had "no legal authority to impose any kind of criminal
sanctions" and that he had no income for the U.S. government to
legitimately tax. The courts did not see it that way, and on Feb. 1, 2008,
he was convicted of three crime charges of failure to file income tax
returns.
2.
accusation was not only listed his unreported revenues but also
unreported money from rental properties he owned, the car he won on a
show and false statements that he had knowingly given about all of the
above. In 2006, he was found guilty of tax evasion and sentenced to 51
months in prison.
3.
Leona Helmsley: Leona Helmsley and her husband, Harry, were New
York real estate tycoons whose huge hotel empire included the Helmsley
Palace on Madison Avenue in Manhattan. They had their Connecticut
mansion; five years later, they were accused on charges of evading $4
million in income taxes for fraudulently billing work on the mansion to
their hotels as business expenses. Leona Helmsley was finally convicted
of evading $1.2 million worth of federal income taxes. Her husband was
4.
found not mentally competent to stand trial. They both have since died.
Pete Rose: In 1990, Rose was sentenced to five months in prison and
fined $50,000 for tax evasion, according to The Associated Press. He had
failed to report more than $350,000 of income from autograph signings,
5.
sales of souvenirs and even the gambling that had cost him his career
Kwame Kilpatrick: The youngest person ever elected mayor of
DetroitKilpatricks
durationwas
famous
for
its
many scandals
and
corruption claims, according to The New York TimesThe former mayor had
created a charitable organization that received tax-exempt status, but
authorities accused him of using the fund to pay for personal expenses,
political consulting, On June 23, 2010, Kilpatrick was accused on multiple
federal charges, including filing false tax returns. Each of the five tax
amounts carried a possible sentence of five years and a $250,000 fine.
The former mayor has arguednot guilty, and his case goes to trial in
6.
September 2012.
Willie Nelson: In 1990, the IRS had served Nelson with a bill for $32
million in back taxes, one of the largest ever presented to an individual,
because his accounting firm, PriceWaterhouse, had put his money into tax
shelters of suspicious validity instead. The singer settled his debt with the
IRS in 1993.
Page 39 of 100
IV.
many
indicators.
Fraud
triangle,
human
greed,
lack
of
transparency, company culture, lack of the internal controls and the Nonindependent internal audit department are the most common reasons for
the financial statement fraud.
Fraud triangle is a model for knowing the indicators that cause
someone to do intentional fraud it is originated from Donald Cressey's
hypothesis in 1973. It consists of three main important components,
which, together, lead to fraudulent behavior. According to Romney &
Steinbart (2008), three conditions exist in the occurrence of fraud:
pressure, opportunity, and rationalization. Albrecht & Albrecht (2004)
state that auditors focus more on the elimination of opportunity by
ensuring strong internal controls, however, they often fail to focus on the
motivation or rationalization of the perpetrators.
Page 40 of 100
1.
c.
dissatisfaction
(salaries,
job
environment,
treatment
by
2.
bills, expensive tastes, addiction problems, etc. always and most of the
time; pressure comes from a significant financial need/problem. Often this
need/problem is non-sharable in the eyes of the fraudster. That is, the
person believes, for whatever reason, that their obstacle must be solved
in secret. However, some frauds are committed simply out of greed alone.
Denise R. Tessier, regarding the fraud triangle theory, stated that ''
Motivation or pressure is the second angle in examining what is driving
the individual to commit the act. Just as with rationalization, the
perception of a need or a pressure is the key factor, and it does not
matter whether or not the motivation makes sense to others or is based in
reality. Individuals may be facing financial or other personal problems
such as gambling, drugs, alcohol addiction, or extreme medical bills. Pure
greed also can factor into the equation but may be flavored with a sense
of injustice. For example, the perpetrator may feel like the company
should have paid me what my car was worth.
3.
get
away
with
anything.
The
late
Robert
Maxwell
(was
Mirror
Group
pension
fund,
which
Maxwell
had
fraudulently
Lack of the internal controls of the company is one of the most famous
reason leads to the financial statement fraud. Internal controls are policies
and procedures that will protect your business assets and reduce the risk
of fraud. They can be simple, little to no cost ways that may prevent or
minimize financial problems. Where are the accounting controls, such as a
monthly reconciliation (Reconciling an account often means proving or
documenting that an account balance is correct. For example, we
reconcile the balance in the general ledger account Cash in Checking to
the balance shown on the bank statement) of the bank account, are lapse
the signals that a fraud has occurred will be missed.
The corporate governance is one of the important tools of the internal
controls. The system by which companies are directed and controlled, it is
also the process by which corporations are made responsive to the rights
and wishes of stakeholders. Corporate governance is also the manner in
which management and those charged with oversight accountability meet
their obligations and fiduciary responsibilities to stakeholders.
Company culture can lead to the frauds in several ways. Managers can
unknowingly create an environment where fraud runs highly. To protect
the organization from the fraud, it is important that management
understands their role in fostering an ethical, healthy work environment.
Robyn Barrett says in her article how company culture can lead to
fraud '' Establishing a positive company culture is a key component in
keeping fraud at bay. It begins with cultivating a company culture that fits
the values most vital to the companys success. This can be achieved by
clearly defining what behaviors will be accepted and encouraged within
the company and which will not.''
According to the CPAs Handbook of Fraud and Commercial Crime
Prevention, a guide published by the American Institute of Certified Public
Accountants, there are certain elements of a companys culture that can
Page 44 of 100
styles,
centralized
distribution
of
authority
and
Banks lose lots of money, which affects other bank customers and
clients who always make up for those losses and affects the banks
investors. Creditors can lose large sums of money, which may not have
been risked if the creditors knew the true financial condition of the
company. Many of top management who make frauds leads their
companies to collapse at the end of the day, those companies after
collapsing can't pay back their loans to the banks and this has a
dangerous effect on the national economy itself.
2.
3.
There are also many other effects of the financial statement frauds
have a direct effect on the company itself including financial loss, External
Confidence, Company Morale and increased audit costs according to John
Freedman, Demand Media in their article How Fraud Hurts You & Your
Organization.
1.
2.
3.
Page 47 of 100
with the same thinking we used when we created them. We will adopt this
approach in trying to understand the indicators and ways to solve the
existing problem of fraud and to understand the behavioral aspects of
fraudsters through understanding the behavioral red flags and business
indicators and reviewing ingenious solutions to this problem.
I.
for are people who are always first and last in the office, rarely take holiday
and are overly protective of their workload.
perpetrate fraud are under fiscal pressure and sometimes these pressures
are real. The minority of the perpetrators steals and save most
immediately spends everything they steal or in better language,
everything they embezzle. As they become more positive in their fraud
schemes, they slip and spend increasingly larger amounts until they are
living lifestyles far beyond what they can reasonably afford, for examples
getting new cars, exotic vacations, home improvements or they even
move into a more expensive home, purchase of expensive jewelers or
clothes.
3.
from
source
to
bank
with
appropriate
segregation
of
responsibilities.
II.
1.
Business Indicators:
Accounts not reconciled to underlying records: The most recent Fraud
Barometer attests, that 55% of the management fraud were performed at
senior levels. One of the common management frauds is introducing the
business as performing in the best image and better than it is truly is. It is
Page 50 of 100
3.
4.
III.
high risk to do fraud and also if the accountant does his job in his office
but without supervision there is also high risky.
Accountant insists on handling activities that other department: other
cases shows that the accountant can be handling more than one jobs on
accounting department and on another department and this increase the
doubts towards this person.
IV.
j. Protecting all files / records that have been assigned to the Auditors
control.
k. Returning all files / records to the person or area, they were obtained
from.
l. Maintaining all records in the same or better condition than that in
which they were found.
m. Retaining all records on premises - never removing vital documents
from the premises.
n. Returning all documents taken to the Internal Auditors work area to
the records custodian by the end of the day if such return is requested.
2. Additional Internal Auditor Responsibility:
a. Developing a knowledge with the organization and functions of the unit
to be audited.
b. Pre-planning the audit in accordance with the opportunity and difficulty
of the area under review.
c. Guaranteeing that an assessment of risks is combined into, or forms
the basis of all audit work planned and performed.
d. Accepting responsibility for the audit work performed on assigned
assignments.
e. Managing the audit in relation to time and resource budgets.
f. Ensuring that audit results and recommendations made during the
course of the audit are on time communicated to management.
g. Ensuring that all Worksheets issued are correctly constructed,
supported, and communicated.
h. Ensuring that all objectives
have
been
accomplished
and
all
there are some essential limitations of audit the report stated, An audit
does not guarantee all material misstatements will be detected because
of such factors as the use of judgement, the use of testing, the inherent
limitations of internal control and the fact that much of the evidence
available to the auditor is persuasive rather than conclusive in nature.
For these reasons, the auditor is able to obtain only reasonable
assurance that material misstatements in the financial report will be
detected. And The risk of not detecting a material misstatement
resulting from fraud is higher than the risk of not detecting a material
misstatement
resulting
from
error
because
fraud
may
involve
Page 54 of 100
Independen
t Public
Accountant
1.
2.
Financia
l Report
3.
Users of
Page 55
of 100
Financial
Reports
4.
5.
Oversight of
financial reporting
Securities and
Exchange
commissions (SEC)
Financial
institutions
regulatory
agencies.
Financial
accounting
standards board
(FASB)
State authorities.
National
The
quality
of
financial
reports
reflects
management
annual
report
is
the
primary
means
of
Page 56 of 100
following:
a. Income Statement.
b. Audited financial statements consisting of balance sheet as of the
two most recent fiscal years.
c. Cash flows Statement.
In addition, additional information should be included in the annual
report to shareholders:
a.
b.
c.
d.
results of operations.
e. Quantitative and qualitative disclosures about market risk.
f. Market price of companys common stock for each quarterly period
within the two most recent fiscal years.
g. Description of business activities.
h. Disagreements with accountants on accounting and financial
disclosures.
2. High Quality Financial Reports:
The main role of the SEC is to protect investors through a fair and
orderly operation of the capital markets. High quality and transparent
financial reports prepared based on full and fair disclosure promote
efficient capital markets. There are certain qualitative aspects of financial
information that are important in producing high quality and transparent
audited financial statements that are prepared in conformity with GAAP.
The financial reporting model that has been established through the
continued efforts of both the public and private sectors is designed to
Page 57 of 100
disclosure
must
be
feasibly
practical
and
cost
effective,
Page 59 of 100
there
is
well-balanced
functioning
system
of
corporate
b. The perception and fear of disciplinary, criminal and civil actions being
taken against perpetrators.
VI.
2)
3)
that
are
independent
from
management,
setting
accounting
policies
and
preparing
financial
statements.
Clear assignment of job duties and establishment of
organizational structure.
6)
Human resources policies and practices that include proper
background screening of employees involved in all key
accounting and financial functions.
7)
A commitment to ongoing training for all employees
involved in the accounting and financial reporting functions to
ensure a high level of technical competence.
b. Risk Assessment:
Risk assessment is the process of identifying and assessing
relevant risks to the achievement of an entitys objectives. As it
relates to financial reporting, factors involved in risk assessment
include the following:
1)
of
Page 62 of 100
changes
in
laws,
financial reporting.
Identification and assessment of risks associated with the
introduction of new personnel, including outside contractors,
or information systems that affect accounting and financial
reporting systems.
c. Control Activities:
Control activities are the policies and procedures applied to carry
out the specific functions of an organization. This is the element of
internal control that most people think of when they are asked
about internal controls. Specific factors involving control activities
pertaining to financial reporting include the following:
1)
2)
financial statements.
Controls designed to make sure that management could
3)
Page 63 of 100
7)
8)
those methods.
Information technology hardware and software controls
designed to prevent unauthorized access to all systems and
9)
capacity
(e.g.,
third-party
specialists
such
as
appraisers).
10)
Verifying the independence of thirdparty valuation
specialists used by the entity.
2)
such
as
fair
value
measurements,
asset
5)
6)
7)
e. E-Monitoring:
Monitoring represents the process of assessing the quality of
internal controls over time. Monitoring assesses both the design and
the operation of internal controls over financial reporting. Important
elements of monitoring may include the following:
1)
2)
3)
operations.
4)
Ongoing ratio and trend analysis.
5)
A robust internal audit function that assesses the performance of internal
6)
7)
Page 65 of 100
8)
9)
specialists).
Periodic special audits of IT security relevant to accounting and financial
reporting.
10)
Monitoring the performance of third parties that are relied upon for
accounting or financial reporting functions.
11)
Monitoring the performance of joint ventures partners that are not
consolidated or part of the entitys own internal control system.
VII.
Page 66 of 100
there
are
other
more
significant
controls
that
can
be
reviewing
by
management,
fraud
trainings,
and
hotlines,
VIII.
Page 67 of 100
alert to that. Fair compensation is always a crucial issue. At the same time, you may be able
to learn about changes in an employees life circumstances that could affect his or her
attitudes toward the company.
It is important to remember that most fraudsters are made, not born. They start out as
good employees, and continue to be regarded as good employees even while they are stealing
from the company. We are not counseling you to spy on your employees. In fact, a fully
transparent and enforced fraud policy can serve to establish confidence in the system.
However, you need to verify what your employees are feeling around the company as
early as possible in order to help them remain within the melodic phrases.
d. Exit Interviews:
HR managers should try to conduct exit interviews with employees who are leaving the
organization, even though that can sometimes be uncomfortable. Masses who are leaving
may in some sense be freed from fears of backlash from colleagues or of misplaced loyalties
and therefore be able to tell you about issues in the society. Again, you do need verifiable
information before anything you learn should lead to action. Chitchat and personal vendettas
may emerge in interviews, and they should be ignored.
Fraud prevention requires eternal vigilance, best provided by a good policy framework
and the support of top management. With these in place, HR contributes greatly to
organizational success through fraud prevention.
IX.
Page 69 of 100
Page 70 of 100
decisions made through this skepticism will open up new hypotheses or close down old ones
by examining them against the gathering evidence until only one explanation is left.
Fraud auditing, forensic accounting, and/or fraud investigation (i.e., Forensic accounting)
puts things together rather than take them apart, as is the case in financial classical auditing
or modern method of systems analysis. The process of forensic accounting is also sometimes
more intuitive than deductive, although both intuition and deduction play important roles.
Financial auditing is procedural in many regards and is not meant to act as effectively as the
tenets of fraud auditing and forensic accounting.
Traditional auditing has a focus on error identification and bar. Bar is the consequence of
an efficient home control system. The auditor reviews the effectiveness of the internal control
system by sampling transactions and not by a complete revaluation of all proceedings. The
procedure can discover faults. Not all mistakes are considered equal.
Some are important and are mentioned to as material. For example,
omission of a million dollar loan that is not entered in the accounting
records might be a material error. Other faults are not material. An
instance of an erroneous belief that might not be material would be an
arithmetic error due to rounding that causes the reported amount to be
ten dollars more or less than the real total. These lessons are not intended
to mean that there are absolute dollar amounts that denote the difference
between cloth and not cloth.
Forensic accounting profession has some demands. Certified fraud
examiner (CFE) is a designation awarded by the ACFE. The ACFE is a
41,000 member-based global association dedicated to providing antifraud
education and training. In order to become a CFE, one must meet the
following requirements:
a.
b.
c.
d.
Page 71 of 100
Chapter 5
Case Study and Application in Preventing Fraud in Financial
Statements
I.
Questionnaire:
The questionnaire was sent to 86 professionals whom were contacted
in a direct and indirect ways, only 40 answered the questionnaire, their
results were meeting the expected moral of the project, and here are
some statistics about the candidates:
1.
By regions the 40 candidates were classified as follows:
Region
No. of
MENA
20
EU
5
Asia
USA &
Latin
Canada
10
America
3
Candida
2.
tes
By job titles the 40 candidates were classified as follows:
Job Title
No. of
Assoc.
CPA
Assoc.
Audit
Auditor
Consulta
Director
27
nt
7
CFE
Candida
Page 72 of 100
tes
3.
By companies the 40 candidates were classified as follows:
Compani
Deloitt
es
No. of
EY
KPMG
BDO
Mazars
PwC
U-Turn
Tax
Refund
13
10
Candida
tes
The questionnaire results to the agreement questions were classified
as follows:
1.
Financial Statements Fraud is immoral act in its nature.
2.
Financial Statements Fraud is common in countries with High Tax
3.
Rates.
Weak internal control on Financial Statements can lead to fraudulent
acts.
4.
Financial Statements Fraud is a trend in manufacturing companies.
5.
Companies with an independent and reliable external audit firm tend to
6.
of
Agreement
Question 1
Question 2
Question 3
Question 4
Question 5
Question 6
Question 7
Agree
Neutral
Disagree
92.5%
72.5%
67.5%
50%
85%
72.5%
5%
7.5%
15%
20%
20%
12.5%
22.5%
20%
0%
12.5%
12.5%
30%
2.5%
5%
75%
The questionnaire results to the (YES / NO/ Prefer not to say) questions
were classified as follows:
Page 73 of 100
1.
2.
Financial Statements?
As an employee, have you ever committed a deliberate Financial
6.
Statements Fraud?
As an External Auditor, have you ever discovered a fraud in Financial
Statements?
Level of
Agreement
Question 1
Question 2
Question 3
Question 4
Question 5
Question 6
Yes
No
N/A
85%
70%
15%
65%
0%
15%
10%
10%
75%
12.5%
87.5%
22.5%
5%
20%
10%
22.5%
12.5%
62.5%
Income
Balanc
Cash
Retaine
Stockhold
Statem
Flow
ers Equity
Page 74 of 100
ent
Sheet
Statem
Earning
Statemen
ent
Statem
Percentage
2.
27.5%
55%
10%
ent
2.5%
0%
Results
Percent
Cash
A/R
Invento
10
ry
28%
25%
age
3.
P&E
Depreciati
Intangible
15%
on
18%
Assets
14%
%
Which of the following items in Income Statement can be easily
Sales
COG
G&A
Income Tax
Interes
Expense
t
Expen
Percentag
36%
34%
24%
5%
se
21%
e
II.
Professional Interview:
The professional interview was with Mr. Sherif El-Sabakhawy (Tax
Manager at Schneider Electric), he is strongly agreeing about the fact that
fraud in financial statements is immoral act, he agrees that countries with
high tax rates tend to have high fraudulent acts cases.in addition, he
agrees that weak internal control can lead to fraudulent acts, he is
strongly agreeing that manufacturing entities has a high fraud cases.
Page 75 of 100
He disagree that MENA region has a rare fraud cases, he also disagree
that bankruptcy is a road cause for fraud cases and as an employee in
one of the Big4 Audit firm he discovered fraud case in one of the
companies he audited and He also agree that the usage of creative
accounting can lead to more fraudulent acts.
The interview was helpful and he provided us with different kinds of
information that helped us in the project itself and he recommended
different people to take our questionnaire and we contacted them and we
met directly and indirectly to discuss the questionnaire.
III.
Case Study:
In order to start the application on financial statements there was a
precise search for financial statements in different areas, after contacting
some practitioners from the accounting industry in Egypt, and abroad until
there was a financial statements provided for LG Electronics Inc. Separate
Financial statements from Helen Hyo-Sun Lim Tax Director in Samil
PricewaterhouseCoopers Seoul, Korea, the contact was done through the
professional social network LinkedIn.
Page 76 of 100
The Audit Report stated that, In our opinion, the separate financial
statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2013 and 2012, and its
financial performance and cash flows for the years then ended, in conformity
with International Financial Reporting Standards as adopted by the Republic
of Korea (Korean IFRS).
The Report gave a general information about the company LG
Electronics Inc. was spun-off from LG Electronics Investment Ltd. on April 1,
2002. The Companys shares are listed on the Korea Exchange, and some of
its preferred shares, in form of global depositary receipts (DRs), are listed
on the London Stock Exchange as of the reporting date. The Company is
domiciled in Korea at Yeoui-daero, Yeungdeungpo-gu, and Seoul.
As of December 31, 2013, LG Corp. owns 33.7% of the Companys total
shares, excluding preferred shares, while financial institutions, foreign
investors and others own the rest.
The Company is engaged in the manufacture and sale of electronic
products including mobile phones, TV, air conditioners, refrigerators, washing
machines and personal computers and of core parts. As of December 31,
2013, the Company operates manufacturing facilities mainly in Pyeongtaek,
Changwon and Gumi in the Republic of Korea.
Following in the next page, we are analyzing the Income Statement
and Balance Sheet in order to discover whether this company has committed
any fraudulent act in their financial statement or not by analyzing the
financial statement.
Page 78 of 100
Page 79 of 100
-9.50%
-13.29%
7.83%
10.43%
13.31%
-0.18%
0.00%
1.74%
-0.31%
0.00%
-12.81%
14.07%
0.00%
0.00%
7.76%
10.39%
0.00%
7.43%
-8.44%
116.21%
-600.03%
0.00%
-21.79%
-27.73%
0.00%
-17.00%
-17.89%
0.00%
-2.08%
6.38%
0.00%
14.69%
-14.51%
0.00%
-39.61%
1.70%
0.00%
189.78%
-151.96%
0.00%
27.65%
-46.70%
Page 80 of 100
101.74% 101.42%
100%
87.19%
100%
100%
107.43% 115.77%
91.56% 101.08%
100%
-16.21%
81.05%
100%
78.21%
56.52%
100%
83.00%
68.15%
100%
97.92%
104.17%
100%
114.69%
98.05%
100%
60.39%
61.42%
100%
-89.78%
46.65%
100%
127.65%
68.03%
99.46%
KRW 1,364,211
150,000
5,077,362
5.64%
0.62%
20.98%
4.68%
0.21%
19.69%
5.20%
0.26%
18.81%
269,017
328,652
433,888
1.11%
1.38%
1.74%
885,730
53,555
921,828
916,581
3.66%
0.22%
3.87%
3.67%
3,276
400,508
3,274
382,876
2,446
439,757
0.01%
1.66%
0.01%
1.61%
0.01%
1.76%
3,670
0.02%
8,153,774
7,547,627
7,853,223
33.69%
31.67%
31.45%
40,962
14,321
4,759
0.17%
0.06%
0.02%
414,462
407,037
410,385
1.71%
1.71%
1.64%
112,056
32,530
31,823
0.46%
0.14%
0.13%
5,190,881
915,977
5,437,210
962,002
6,045,037
1,085,867
21.45%
3.79%
22.81%
4.04%
24.21%
4.35%
658,424
752,226
875,503
2.72%
3.16%
3.51%
7,964,549
5,360
7,950,178
8,254
8,006,190
2,979
32.91%
0.02%
33.36%
0.03%
32.06%
0.01%
742,785
720,791
655,316
3.07%
3.02%
2.62%
16,045,456
24,199,230
16,284,549
23,832,176
17,117,859
24,971,082
66.31%
100.00
Page 81 of 100
68.33% 68.55%
100.00% 100.00%
%
Liabilities:
Current liabilities
Trade payables
Borrowings
Other payables
Other financial
liabilities
Current income tax
liabilities
Provisions
Other current
liabilities
Total Current
Liability:
Non-current
liabilities
Borrowings
Other financial
liabilities
Defined benefit
liability
Provisions
Total Non-Current
Liabilities:
Total Liability:
Equity:
Paid-in capital:
Capital stock
Share premium
Retained earnings
Accumulated other
comprehensive
income
Other components
of equity
Total Equity
Total Liability &
Equity
3,853,528
1,701,658
2,697,795
3,995,679
1,057,585
1,629,416
4,327,403
1,391,805
1,798,292
15.92%
7.03%
11.15%
16.77%
4.44%
6.84%
17.33%
5.57%
7.20%
12,699
9,090
0.05%
0.04%
169,196
9,437
192,306
212,710
0.70%
0.04%
0.81%
0.85%
436,315
1,476,538
1,607,031
1.80%
6.20%
6.44%
8,871,191
8,360,961
9,346,331
36.66%
35.08%
37.43%
4,124,188
4,206,740
4,550,437
17.04%
17.65%
18.22%
13,889
9,891
0.06%
0.04%
363,617
345,373
467,598
760,033
413,825
817,778
1.50%
1.43%
1.96%
3.19%
1.66%
3.27%
4,833,178
13,704,369
5,448,260
13,809,221
5,791,931
15,138,262
19.97%
56.63%
22.86%
57.94%
23.19%
60.62%
904,169
3,088,179
6,534,129
904,169
3,088,179
6,059,062
904,169
3,088,179
5,857,083
3.74%
12.76%
27.00%
3.79%
12.96%
25.42%
3.62%
12.37%
23.46%
1,203
4,364
16,208
0.00%
0.02%
0.06%
(32,819)
10,494,861
(32,819)
10,022,955
(32,819)
9,832,820
0.14%
42.06%
0.13%
39.38%
24,199,230
23,832,176
24,971,082
0.14%
43.37%
100.00
%
Page 82 of 100
100.00% 100.00%
KRW 1,364,211
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
150,000
50,000
65,000
5,077,362
4,693,196
4,697,202
269,017
-
328,652
53,555
433,888
-
Inventories
Current income tax
assets
885,730
921,828
916,581
3,276
3,274
2,446
400,508
382,876
439,757
3,670
8,153,774
7,547,627
7,853,223
40,962
14,321
4,759
414,462
407,037
410,385
112,056
32,530
31,823
5,190,881
5,437,210
6,045,037
915,977
962,002
1,085,867
658,424
752,226
875,503
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
7,964,549
7,950,178
8,006,190
0.00
%
Trade receivables
Loans and other
receivables
Other financial assets
Page 83 of 100
0.00
%
-18.32%
16.52%
-66.67%
30.00%
-7.57%
0.09%
22.17%
-
32.02%
-
4.08%
-0.57%
-0.06%
-25.29%
-4.40%
14.86%
-7.43%
4.05%
-65.04%
-66.77%
-1.79%
0.82%
-70.97%
-2.17%
4.75%
11.18%
5.02%
12.88%
14.25%
16.39%
-0.18%
0.70%
Investment property
Other non-current
assets
Total Non Current
Assets:
Total Assets
Liabilities:
Current liabilities
5,360
8,254
2,979
742,785
720,791
655,316
16,045,456
16,284,549
17,117,859
24,199,230
23,832,176
24,971,082
0.00
%
0.00
%
0.00
%
0.00
%
53.99%
-63.91%
-2.96%
-9.08%
1.49%
5.12%
-1.52%
4.78%
3.69%
8.30%
-37.85%
31.60%
-39.60%
10.36%
13.66%
238.41
%
10.61%
-5.75%
11.79%
2.00%
8.17%
-28.79%
28.60%
120.06
%
-11.50%
12.73%
6.31%
0.77%
9.62%
0.00%
0.00%
0.00%
0.00%
0.00
%
0.00
%
0.00
%
Trade payables
3,853,528
3,995,679
4,327,403
Borrowings
1,701,658
1,057,585
1,391,805
Other payables
Other financial
liabilities
Current income tax
liabilities
2,697,795
1,629,416
1,798,292
12,699
9,090
9,437
169,196
192,306
212,710
436,315
1,476,538
1,607,031
8,871,191
8,360,961
9,346,331
0.00
%
0.00
%
0.00
%
4,124,188
4,206,740
4,550,437
0.00
%
13,889
9,891
363,617
467,598
413,825
345,373
760,033
817,778
4,833,178
5,448,260
5,791,931
Total Liability:
Equity:
Paid-in capital:
13,704,369
13,809,221
15,138,262
0.00
%
0.00
%
0.00
%
0.00
%
Capital stock
Share premium
904,169
3,088,179
904,169
3,088,179
904,169
3,088,179
0.00
%
0.00
Provisions
Other current
liabilities
Total Current
Liability:
Non-current
liabilities
Borrowings
Other financial
liabilities
Defined benefit
liability
Provisions
Total Non-Current
Liabilities:
Page 84 of 100
8.84%
7.60%
Retained earnings
Accumulated other
comprehensive
income
Other components of
equity
Total Equity
Total Liability &
Equity
6,534,129
6,059,062
5,857,083
1,203
4,364
16,208
(32,819)
(32,819)
(32,819)
10,494,861
10,022,955
9,832,820
24,199,230
23,832,176
24,971,082
%
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
-7.27%
-3.33%
262.76
%
271.40
%
0.00%
0.00%
-4.50%
-1.90%
-1.52%
4.78%
KRW 1,364,211
150,000
5,077,362
81.68%
33.33%
92.43%
95.17%
43.33%
92.51%
269,017
885,730
328,652
53,555
921,828
161.29%
103.48%
3,276
400,508
3,274
382,876
2,446
439,757
3,670
8,153,774
7,547,627
40,962
414,462
14,321
407,037
Page 85 of 100
100%
100%
99.94%
95.60%
74.66%
109.80%
- 100%
7,853,223 100%
92.57%
96.31%
34.96%
98.21%
11.62%
99.02%
4,759
410,385
100%
100%
receivables
Other financial assets
Property, plant and
equipment
Intangible assets
Deferred income tax
assets
Investments in
subsidiaries,
associates and joint
ventures
Investment property
Other non-current
assets
Total Non-Current
Assets:
Total Assets
Liabilities:
Current liabilities
Trade payables
Borrowings
Other payables
Other financial
liabilities
Current income tax
liabilities
Provisions
Other current
liabilities
Total Current
Liability:
Non-current
liabilities
Borrowings
Other financial
liabilities
Defined benefit
liability
Provisions
Total Non-Current
Liabilities:
Total Liability:
Equity:
Paid-in capital:
112,056
32,530
31,823
5,190,881
915,977
5,437,210
962,002
658,424
29.03%
28.40%
6,045,037
1,085,867
100% 104.75%
100% 105.02%
116.45%
118.55%
752,226
875,503
100% 114.25%
132.97%
7,964,549
5,360
7,950,178
8,254
8,006,190
2,979
100% 99.82%
100% 153.99%
100.52%
55.58%
742,785
720,791
655,316
100%
97.04%
88.22%
16,045,456
24,199,230
16,284,549
23,832,176
17,117,859
24,971,082
100% 101.49%
100% 98.48%
106.68%
103.19%
3,853,528
1,701,658
2,697,795
3,995,679
1,057,585
1,629,416
4,327,403
1,391,805
1,798,292
100% 103.69%
100% 62.15%
100% 60.40%
112.30%
81.79%
66.66%
12,699
9,090
100%
71.58%
169,196
9,437
192,306
436,315
1,476,538
1,607,031
100% 338.41%
368.32%
8,871,191
8,360,961
9,346,331
100%
94.25%
105.36%
4,124,188
4,206,740
4,550,437
100% 102.00%
110.34%
13,889
9,891
363,617
345,373
467,598
760,033
413,825
817,778
100% 128.60%
100% 220.06%
113.81%
236.78%
4,833,178
13,704,369
5,448,260
13,809,221
5,791,931
15,138,262
100% 112.73%
100% 100.77%
119.84%
110.46%
Page 86 of 100
100%
100%
125.72%
Capital stock
Share premium
Retained earnings
Accumulated other
comprehensive
income
Other components of
equity
Total Equity
Total Liability &
Equity
904,169
3,088,179
6,534,129
904,169
3,088,179
6,059,062
904,169
3,088,179
5,857,083
1,203
4,364
16,208
(32,819)
10,494,861
(32,819)
10,022,955
24,199,230
23,832,176
100% 100.00%
100% 100.00%
100% 92.73%
100.00%
100.00%
89.64%
100%
98.48%
100.00%
93.69%
103.19%
Financial Ratios
Ratios
Liquidity
Ratios
Turnover
Ratios
Leverage
Ratios
Profitabilit
y Ratios
Current Ratio
Working Capital
Acid-Test Ratio
Cash Ratio
Sales / Working Capital
A/R Turnover
Inventory Turnover
Days to A/R Turnover
Days to Inventory
Turnover
Operating Cycle
Time Interest Earned
Debt Ratio
Debt / Equity Ratio
Debt to tangible net worth
Fixed Assets Equity
Net Profit Margin
Operating Income Margin
Total Assets Turnover
Return on assets
2011
0.919129573
(KRW 717,417)
0.774139121
0.153779915
39.16430611
5.533806532
26.02698452
65.95821482
2012
0.902722426
(KRW 813,334)
0.746675292
0.133267695
31.26293134
5.986781502
21.68316432
60.96765012
2013
0.840246617
(KRW 1,493,108)
0.695126783
0.138915367
18.80566911
5.981675687
24.71086571
61.01969065
Industry
Average
2.32
N/A
0.39
N/A
N/A
N/A
30.72
52.1
14.0239066
79.98212142
-2.43978643
56.63%
130.58%
143.07%
49.46%
-0.99%
-1.88%
1.161075745
-1.15%
16.83333644
77.80098656
-0.569709754
57.94%
137.78%
152.40%
54.25%
-1.40%
-0.52%
1.066927544
-1.49%
14.77083014
75.79052079
-1.342291826
60.62%
153.96%
173.07%
61.48%
-0.67%
-1.09%
1.124456481
-0.76%
N/A
N/A
N/A
35.24%
158%
N/A
N/A
5.64%
N/A
0.95
1.38%
Page 87 of 100
Cash
Conversion
Cycle
Return on Investments
Return on Equity
Days in Inventory
Days in Receivables
Days in Payables
Cash Gap
-3.44%
-2.65%
15 days
66 days
59 days
22 days
-0.85%
-3.54%
17 days
68 days
73 days
12 days
-1.95%
-1.92%
15 days
62 days
70 days
7 days
N/A
11.62%
N/A
N/A
N/A
N/A
2.
3.
4.
Page 88 of 100
The current ratios of the company is below the industry average level
which is 2.32 that means the company is not being able to settle the short
term debts by their current assets which shows a very unfavorable
position to the company.
6.
7.
The acid-test ratio is higher than the industry average of 0.39 and the
company can convert their current assets easily to cash for meeting the
8.
short-term liability.
The companys cash ratio is decreasing through years 2011, 2012 and
2013 by 0.15, 0.15 and 0.13 which means that the company cant pay its
current liability without relying on the sale of inventory and without
relying on the receipts of the accounts receivables and the percentage
should be equal to at least 1 not as an industry average but as a logical
ratio.
9.
10.
average turnover ratio, despite the fact that it is not stable and to be clear
Page 89 of 100
the company should increase it next years to meet the industry average
by 2019.
12.
the years 2011, 2012 and 2013 yet it did not reach the industry average
days to A/R and might reach it by 2017.
13.
The debt equity ratios is very high in this industry as 158% and
the company still operates under the umbrella of the industry average yet
its recommended that the company should lower its debt equity ratio by
decreasing liability at least to balance.
18.
years 2011, 2012 and 2013 with no accurate industry average in this
industry the stockholders equity is more than the fixed assets and that
means that the stockholders equity is financing not just the fixed assets
Page 90 of 100
years 2011, 2012 and 2013 showing up a negative percentage than the
industry average of 5.64% which is so unfavorable position that means in
order to perform well again the company should gain more revenues or
keeping expenses constant or lower expenses but we cannot tell that this
is going to be easy or going to be soon either.
20.
1.12 in years 2011, 2012 and 2013 compared to industry average of 0.95
and this means that the company uses its assets efficiently.
21.
(ROI) that means the company has no ability to reward those who
provided long-term funds and will not attract providers of future funds and
this is so risky.
23.
Page 91 of 100
Chapter 6
Conclusion
I.
Questionnaire:
The conclusion of the questionnaire will be explained in the following
points:
1.
statements.
The selection of the candidates were conducted on professional
basis to understand how professional consider fraud in financial
statements that is why segmenting professional firms was important to
3.
the questionnaire.
The majority of the candidates agrees that fraud is an immoral
act, companies with an independent external audit firm tend to have
Page 92 of 100
bankruptcy.
High percentage of the candidates agrees that fraud occurs in
countries with high tax rates, weak internal control can lead to
fraudulent act, financial statement fraud is common in manufacturing
5.
6.
7.
8.
II.
Case Study:
1.
In year 2012, the other current liability increase by 1 Billion
Korean Won compared to year 2011 with an unexplained reason in the
financial statements, which is a sign for fraudulent acts in the liability
section of the company.
2.
3.
4.
5.
References
1. Owen, Erik. "Why Are Financial Statements Important?" Oak Hill Business
Partners. Oak Hill Business Partners, 15 Mar. 2013. Web. 12 May 2015.
< http://www.oakhillbp.com/673/why-are-financial-statementsimportant/>.
2. Kuepper, Justin. "Spotting Creative Accounting On The Balance Sheet."
Investopedia. Investopedia, 22 Mar.2010.Web. 13 May 2015.
<http://www.investopedia.com/articles/fundamental-analysis/10/creativeaccounting-balance-sheet.asp>.
3. Ritholtz, Barry. "10 Worst Corporate Accounting Scandals | the Big
Picture." The Big Picture. The Big Picture, 7 Mar. 2013. Web. 13 May 2015.
< http://www.ritholtz.com/blog/2013/03/worst-corp-scandals>.
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< http://www.u4.no/publications/corruption-in-tax
administration/downloadasset/422.>
8. JAVIRIYAH ASHRAF, THE CAUSES, THE CHARACTERISTICS, THE
CONSEQUENCES, AND THE LESSONS LEARNED The Burnett Honors
College at the University of Central Florida Orlando, Florida. Spring Term
2011
< http://etd.fcla.edu/CF/CFH0003811/Ashraf_Javiriyah_201105_BSBA>
9. VLAD, Mariana, Mihaela TULVINSCHI, and Irina CHIRI. "THE
CONSEQUENCES OF FRAUDULENT FINANCIAL REPORTING. The Annals of
the "tefan Cel Mare" University of Suceava. Fascicle of the Faculty of
Economics and Public Administration, 2011. Web. 14 Mar. 2015.
<http://webcache.googleusercontent.com/search?q=cache
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12.
Gupta, Rajan, and Nasib Singh Gill. "A Data Mining Framework for
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16.
Statement Fraud Case Study: The Role That National Culture Plays On
Detecting And Deterring Fraud. Second ed. Vol. 10: Journal of Business
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Mar. 2015.
<http://webcache.googleusercontent.com/search?
q=cache:2ZfPXrdU1dcJ:www.cluteinstitute.com/ojs/index.php/JBCS/article/
download/8506/8514+&cd=1&hl=en&ct=clnk&gl=eg>
17. Rootzn, Holger. The Enron Scandal.: Chalmers U of Technology, Chalmers
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Pavel_MyleneEncontro_ENRON.pdf+&cd=1&hl=en&ct=clnk&gl=eg
18. COLBY, EVERETT E. "Financial Statement Fraud.".Web. 13 May 2015.
< http://webcache.googleusercontent.com/search?q=cache:H
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aud_p3.pdf+&cd=1&hl=en&ct=clnk&gl=eg>.
19.
Bukszpan, Daniel. "And the Oscar for Not Paying Taxes Goes to." Nbc
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< http://www.nbcnews.com/id/46800653/ns/businesspersonal_finance/t/oscar-not-paying-taxes-goes/#.VVN8efmqqko>.
22.
Merwe, Carl. "Seven Signs of Internal Fraud." PwC. PwC, Web. 13 May
2015. <http://www.pwc.com/na/en/press-room/seven-signs-of-internalfraud.jhtml>
25.
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