How Accounting Frauds are Committed?

In these trying times, there are still many people who are taking the chance to søk om smålån på minuttet. The sad thing though is, those who are already running a business is trying to manipulate their income and taxes using accounting fraud. This is when a company is falsifying its financial statements by means similar to:

  • Misstating liabilities and assets
  • Not recording expenses and;
  • Overstating revenue

What’s an Accounting Fraud?

In order for an action to be considered as an accounting fraud, a company should deliberately falsify their financial records. Consider a company that has made estimates that should be revised later. There is no accounting fraud that can be considered since the mistakes weren’t deliberately made.

Now, assuming that a CEO of a publicly-traded firm consciously makes false statements regarding the prospects of their firm, then the SEC or Securities and Exchange Commission might charge that CEO with fraud. The thing is, this would not be considered as accounting fraud for there’s no financial records that were falsified.

Overstating Revenue

Any company can actually commit an accounting fraud if in the event that it has overstated its revenue. Say for example that a certain company is operating at a loss and isn’t generating enough income. Now, to be able to cover up the situation, the firm may claim to produce more income onto their financial statements than what they actually do. On the statement reported, the profits of the company will be inflated.

Now, if the company has overstated their revenue, it is going to drive up the share price of the firm and create a false image of its financial status.

Unrecorded Expenses

Yet another known kind of accounting fraud is when the company fails to record its expenses. The net income of the company is overstated and the costs are understated onto its income statement. Such accounting fraud is creating false impression of exactly how much the net income the company receives. In paper, the company may be generating handsome revenue but in reality, it might be losing cash.

Misstating Assets and Liabilities

This is another type of accounting fraud that takes place when a company has understated its liabilities or overstated its assets. To give you a brief example, a company may have overstated their existing assets and then, understating their current liabilities. In such fraud, it is misrepresenting the short-term liquidity of the company, which can be risky for investors in the long run.