Financial Statement Fraud and Revenue Recognition Fraud Essay

Financial Statement Fraud and Revenue Recognition Fraud - Essay Example We can define financial fraud as an intentional act to deceive people through manipulated financial statements for personal gain (â€Å"Bank Negara Malaysia† 1). Financial fraud is crime under civil law and involves complex financial transactions conducted by white-collar business professionals with a criminal intention (â€Å"Bank Negara Malaysia† 1). Nevertheless, financial fraud derives numerous loses on the global economy and on the reference corporations where many companies collapse due to financial frauds. Additionally, financial fraud demeans investor confidence in financial reporting and lowers the efficiency of corporate governance. A financial statement fraud refers to an intentional misrepresentation of financial information that the corporation presents to the public. Notably, improper revenue recognition, failure to record incurred liabilities, and failure to disclose contingent liabilities are the most dominant financial statement frauds (Bradford 1). Cas es of financial statement fraud are on the increase and the economic crisis catalyzes the problems. Nevertheless, most of the financial statement frauds relate to revenues recognition while accounting errors take the other proportion. As such, internal and external auditors should understand the dynamics of revenue recognition fraud and institute proper measures to curb financial fraud. Ideally, financial statement fraud and revenue recognition fraud relate to financial fraud. Definition Financial statement fraud refers to an intentional misrepresentation, misstatement, or omission of financial statement data for the purpose of deceiving the public and creating a false impression of an organization's financial strength (Colby 1). Notably, financial statement fraud is an enormous challenge in the global market as corporations seek to stalk investors to continue investing in the corporation. Moreover, corporations engage in financial statement fraud for purposes of securing bank appro vals for financing and satisfy the shareholder’s interests (Bradford 1). Ideally, the top management plays the major role in a financial statement fraud since they supervise and authorize the preparation of financial statements. There are different forms of financial statement fraud in the global market where the initiators will use distinct systems of manipulation to maintain the appearance of the financial statement fraud. The most common types of financial statement fraud include manipulation of liabilities, improper recognition of revenues and expenses, improper asset valuation, improper disclosures (Pinkasovitch 1) on financial statements, and fictitious sales (Colby 2). However, manipulation of revenue is the most dominant form of financial statement fraud. This includes the posting of sales prior to payment while the manipulation of expenses includes the capitalization of normal operating expenses (Bradford 1). On the other hand, the manipulation of liabilities relates to failure to record regular expenses while improper disclosures relates to misrepresentation of the company’s financial status (Bradford 1). An overstatement of current assets on financial statements leads to improper assets and defines financial statement fraud (Colby 2).