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Methods of Financial Statement Fraud Presentation Transcript:
1.Methods of Financial Statement Fraud
2.Fictitious revenues
Timing differences
Improper asset valuations
Concealed liabilities and expenses
Improper disclosures
3.Fictitious revenues
Timing differences
Improper asset valuations
Concealed liabilities and expenses
Improper disclosures
4.Fictitious Revenues
Recording of goods or services that did not occur
Fake or phantom customers
Legitimate customers
Sales with conditions
Pressures to boost revenues
5.Red Flags – Fictitious Revenues
Rapid growth or unusual profitability, especially compared to that of other companies in the same industry
Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth
6.Timing Differences
Recording revenue and/or expenses in improper periods
Shifts revenues or expenses between one period and the next, increasing or decreasing earnings as desired
7.Red Flags – Timing Differences
Significant, unusual, or highly complex transactions
Unusual increase in gross margin or margin in excess of industry peers
Unusual growth in the number of days’ sales in receivables
Unusual decline in the number of days’ purchases in accounts payable
8.Concealed Liabilities
Liability/expense omissions
Capitalized expenses
Failure to disclose warranty costs and liabilities
9.Red Flags – Concealed Liabilities
Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth
Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate
Nonfinancial management’s excessive participation in or preoccupation with the selection of accounting principles or the determination of significant estimates
10.Improper Disclosures
Liability omissions
Subsequent events
Management fraud
Related-party transactions
Accounting changes
11.Red Flags – Improper Disclosures
Domination of management by a single person or small group without compensating controls
Ineffective board of directors or audit committee oversight over the financial reporting process and internal control
Rapid growth or unusual profitability.
12.Significant related-party transactions not in the ordinary course of business or with related entities
Significant bank accounts or subsidiary or branch operations
Overly complex organizational structure involving unusual legal entities or managerial lines of authority
13.Inventory valuation
Accounts receivable
Business combinations
Fixed assets
Methods of Financial Statement Fraud Presentation Transcript:
1.Methods of Financial Statement Fraud
2.Fictitious revenues
Timing differences
Improper asset valuations
Concealed liabilities and expenses
Improper disclosures
3.Fictitious revenues
Timing differences
Improper asset valuations
Concealed liabilities and expenses
Improper disclosures
4.Fictitious Revenues
Recording of goods or services that did not occur
Fake or phantom customers
Legitimate customers
Sales with conditions
Pressures to boost revenues
5.Red Flags – Fictitious Revenues
Rapid growth or unusual profitability, especially compared to that of other companies in the same industry
Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth
6.Timing Differences
Recording revenue and/or expenses in improper periods
Shifts revenues or expenses between one period and the next, increasing or decreasing earnings as desired
7.Red Flags – Timing Differences
Significant, unusual, or highly complex transactions
Unusual increase in gross margin or margin in excess of industry peers
Unusual growth in the number of days’ sales in receivables
Unusual decline in the number of days’ purchases in accounts payable
8.Concealed Liabilities
Liability/expense omissions
Capitalized expenses
Failure to disclose warranty costs and liabilities
9.Red Flags – Concealed Liabilities
Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth
Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate
Nonfinancial management’s excessive participation in or preoccupation with the selection of accounting principles or the determination of significant estimates
10.Improper Disclosures
Liability omissions
Subsequent events
Management fraud
Related-party transactions
Accounting changes
11.Red Flags – Improper Disclosures
Domination of management by a single person or small group without compensating controls
Ineffective board of directors or audit committee oversight over the financial reporting process and internal control
Rapid growth or unusual profitability.
12.Significant related-party transactions not in the ordinary course of business or with related entities
Significant bank accounts or subsidiary or branch operations
Overly complex organizational structure involving unusual legal entities or managerial lines of authority
13.Inventory valuation
Accounts receivable
Business combinations
Fixed assets
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