Question

Why is manipulation of financial statements not only unethical and illegal, but also bad for stockholders?

Answer 1

Financial statement are formal record of financial activities and financial position of the organisation. Manipulation of financial statements is an intentional mispresentation of financial statements. Intentional mispresentation is an fraud that damage the wealth of stakeholders.

As per the ethical standards and legal provisions manipulation of financial statements is not allowed, (like a criminal activity), as per the auditing standards manipulation of books of accounts leads to adverse reporting to the stock holders. The manipulation of financial statements are not only unethical but also illegal, punishable offence.

Showing huge profits to actract stockholders, window dressing of financial statements and missutilisation of stockholders wealth and company's resource will cause for liquidation. Such time shareholders will not get their investment, employee loss their position in Company, This effect (bad for) not only stockholders and also employee....etc.,