University Accounting Report: Financial Statement Fraud and Governance

This report provides an opinion on a financial statement fraud case, discussing the motivations behind such frauds, including management's desires to manipulate share prices and minimize tax liabilities, as well as organizational factors like weak control environments. The report examines various fraudulent methods, such as false profit recording and manipulation of sales agreements. It references a study of 14 companies investigated for financial statement fraud, highlighting the role of senior management and the common practice of recording false sales. The report emphasizes the importance of strengthening auditing standards and the role of corporate governance in preventing fraud, defining corporate governance as the mechanisms that direct and control a corporation, balancing stakeholder interests. The report also includes a discussion of corporate governance, referring to the impact of proxy advisors, shareholders, and the board of directors, and concluding that good corporate governance is key to organizational success.

Running Head: ACCOUNTING
ACCOUNTING
Name of the Student
Name of the University
Author Note

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Table of Contents
Opinion for the Case..................................................................................................................2
Corporate governance................................................................................................................3
Reference....................................................................................................................................4

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Opinion for the Case
I have the opinion regarding the case of financial statement fraud is that the financial
fraud is any act that is intentional or the omission, which results in the materiality of the
financial statements. Misstatement that is intentional generally includes the omissions of the
amount as well as disclosures in financial report for deceiving the users of the financial
statements. The motivation behind the fraud in the financial statement includes many reasons
but most important includes involvements of the management, which includes desires for
maintaining for increasing the prices of shares, desire for minimizing the tax liabilities and
desires for raisings cheap external. Moreover, it also includes need for avoiding violations of
the debt covenants, need for meeting internal as well as external forecasts and packages of
compensations thatis based on the reported earnings. In addition, the organizational factors
that likely contributes to the fraudulent financial reporting includes, weak control
environment, rapid growth, inconsistency in the profitability, ownership status and undue
emphasis by the management on the meeting the earnings forecast. Each of the firm commits
fraud whenever it is easy for committing the concealing the fraud. The other methods for the
fraudulent financial statements includes recording of the false profit in the disposal, side
agreements in relation to the sales and manipulations of the lease agreements. In addition, it
also includes offsetting of the gains against the loses which was not recorded previously and
entering of the sales agreements that produces no profits, that is solely for increasing revenue
(Salama and Omar 2014).
Therefore from the paper by Niamh and Mary, I have found that it has studied 14
companies, which was subject to the official investigations that have arisen from the
publications of the fraud in the financial statements. I have find that the senior management is
responsible for most of the fraud. The common method of the fraud in the financial statement
includes recording of the false sales. Hence, the primary motivation behind this fraud is

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meeting the external forecasts. The management discovers most of the fraud. However, the
discovery of this fraud was split between the incumbent as well as the new management.
Hence, financial statements are responsibility of the directors of the company and there
should be adequately staffing of accounting department for enabling divisions of duties. In
addition, auditing standards should be strengthened and the auditors should access the risk of
the fraudby taking into account board independence and audit committee (NIAMH M.
BRENNAN AND MARY McGRATH2019).
Corporate governance
I have learned in my university that corporate governance is defined as the
mechanisms, processes and relations by the help of which the corporation is directed as well
as controlled. This involves balancing many stakeholder’s interest of the corporation such as
senior management executives, suppliers, government, shareholders and the community. It is
the system of the practices, rules as well as processes, which helps in providing the
framework for attaining the objectives of the company by encompassing practically each
spheres of the management (Armstronget al. 2015).
While working in the previous company, I have learned that the proxy advisors and
the shareholders are the important stakeholders who affect indirectly corporate governance.
However, the pivotal role in the corporate governance is board of directors as they can have
majority of ramifications for the valuations of the equity (Tricker2015). I can give one
example of it from my previous organization, where I worked; the management of last
company was responsible for taking all the major decision regarding all the aspects of the
business. My last company was working for the best interest of its stakeholders that included
employees as well. I as an employee there got so many benefits such as goods perks, bonuses,
medical facilities and many other benefits. Hence, I can say a good cooperate governance is
key to success of every organizations (Armstronget al. 2015).

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Bibliography
Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., andLarcker, D. F. (2015). Corporate
governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), 1-
17.
NIAMH M. BRENNAN AND MARY McGRATH.(2019). FINANCIAL STATEMENT
FRAUD: SOME LESSONS FROM US AND EUROPEAN CASE STUDIE. [ebook]
Available at: http://file:///C:/Users/admin/Desktop/brennan2007%20(1).pdf [Accessed 13
May 2019].
Salama, A.S. and Omar, A.A., 2014. A back propagation artificial neural network based
model for detecting and predicting fraudulent financial reporting. International Journal of
Computer Applications, 106(2), pp.18489-9521.
Tricker, B., 2015. Corporate governance: Principles, policies, and practices. Oxford
University Press, USA.