Question

Read 3 articles related to fraud in accounting.

1. Put a summary of the article (2 pt)

2. put the url of where the article can be found(1 pt)

3. Indicate what you have learned? ( 2 pt)

Answer 1

What is Accounting Fraud?

Accounting fraud is an intentional manipulation of financial statements in order to create a good impression about the company’s financial health. It may involve an employee, accountant or management misleading their investors about their financial position.

The company can falsify its Income statements by:

• Overstating its revenues

• Not receding its expenses

• Under recording its liabilities

• Manipulating cash flow statement

• Overstating its Inventory

For example:

Suppose Company XYZ is actually operating at a loss and is not able to generate any revenues. In the financial statements of the company, the company’s profit could be inflated and thus overstate its net worth. If the company overstates it revenue, then it would drive up its share price and falsely depicts its financial health.

Role of a chartered accountant to overcome from accounting fraud -

Taken together, the CA profession is contributing a lot to the economy. But mostly it’s a supporting role, not a leading role. The major role in the economic development is played by entrepreneurs, businessmen and the government. People who bring together various resources to produce goods or services in an economy.

Chartered Accountants don’t bring together any resources to create any significant economic development, they are resources themselves. Most CAs help the economy indirectly through the following activities:

• Supporting in tax compliance. This includes liaison with government authorities, representing clients in courts, ensuring smooth business operations by taking over the complex tax compliance part. For example, without the CA profession, changes like GST will be very hard to implement.

• Financing. Creating opportunities by arranging for business finance. They are helpful in making calculations and convincing banks about the credit worthiness of entrepreneurs. On a large scale too, many CAs working with investment banks help to arrange some key business deals between organisations.

• Auditing - which includes the redundant but still necessary function of control procedures. This is to prevent leakages from the economy and stand vigil to check on creation of illegal properties, black money and frauds etc.

• Accounting - bringing together professional standards of accounting in changing business environment and to accommodate new developments in business. This ensures comparability, reliability and investor faith, which is good for the economy.

• General business support - a lot of other things that Chartered Accountants do can be classified as general support and consulting services. They can do this because of their knowledge about laws, taxes, compliance, financial markets, investments, valuations, banking, regulations etc. It’s too many things, but mostly for supporting roles only.