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FOR3703 OCTOBER NOVEMBER PORTFOLIO (COMPLETE ANSWERS) Semester 2 2024 - DUE 31 October 2024
FOR3703 OCTOBER NOVEMBER PORTFOLIO (COMPLETE ANSWERS) Semester 2 2024 - DUE 31 October 2024
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,FOR3703 OCTOBER NOVEMBER PORTFOLIO(COMPLETE ANSWERS) Semester 2 2024 - DUE 31
October 2024; 100% TRUSTED Complete, trusted
solutions and explanations.
Scenario Financial statement fraud is a white-collar crime
usually perpetrated by management insiders to present a
company in a favourable fiscal light. Fraudsters are motivated
by personal gain such as performance-based compensation for
the enhancement of company’s reputation by misleading
potential investors. Or they want to buy time to correct their
financial mistakes or recoup their losses. Financial statement
fraud is a crime of opportunity. Companies with lax internal
controls, manual accounting systems or dishonest and overly
aggressive leaders are more likely to fall prey to it. The key to
combating financial statement fraud is to prevent it from ever
happening. If it cannot be prevented, it must be found as soon
as possible. Based on the information in the case study, answer
the following questions: 1.1. Discuss the different types of
financial statement fraud and explain why company personnel
commit it. Also indicate how financial statement fraud red flags
can signal potential fraudulent practices. (50) 1.2. Discuss the
methods to detect and prevent financial statement fraud. (50)
1.1 Types of Financial Statement Fraud, Reasons for Fraud, and
Red Flags
Types of Financial Statement Fraud:
, 1. Revenue Recognition Fraud: This involves recognizing
revenue before it’s actually earned, often through falsified
sales or exaggerated revenue figures. Methods include
channel stuffing (forcing distributors to buy more inventory
than needed) and fake sales to boost reported revenue.
2. Expense Manipulation: Manipulating or delaying expense
recording can inflate profit. Fraudsters may understate
expenses by omitting or delaying accruals, capitalizing
expenses instead of expensing them, or shifting expenses
to future periods.
3. Asset Valuation Fraud: Overstating asset values (e.g.,
inventory, receivables, or goodwill) can make a company’s
balance sheet appear healthier. Techniques include
inflating inventory values, extending credit terms on
receivables, and improper asset write-downs.
4. Liability Concealment: Concealing or understating
liabilities makes a company appear more financially stable.
This can involve failing to record liabilities, transferring
them to off-balance-sheet accounts, or misclassifying
them.
5. Improper Disclosure Fraud: Withholding or altering
information in financial statement notes or disclosures
misleads stakeholders. Examples include failing to disclose
contingent liabilities or masking transactions that pose
risks to the company’s financial health.
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