Financial Statement Fraud Schemes

Objective of financial statement fraud schemes: to defraud user of financial statements

Regardless of the size and nature of an company, the main objective behind every financial statement fraud scheme is to intentionally defraud the users of the financial statements being provided. It is vital not to limit your concept of fraudulent reporting to audited financial statements. I should say The risk for fraudulent reporting probably exists with lower level review assignments  and compiled financial statements. However, the level of risk and the number of users of these levels of financials tend to be more controlled. Before we go to financial statement fraud discussion, we should understand, in general terms, the process of preparing and issuing financial statements.

Auditor's Responsibility for the FS fraud 

While the level of scrutiny and procedures performed will be highest with audits, the overall process of issuing financial statements in an audit will be similar to those issued within reviews and compilations. Management is responsible for preparing the financial statements, footnote disclosures,andallaspectsof the financial reporting.

Preventive Actions

The organization ’sinternal controls and proceduresove rfinancialreporting should include measures to ensure the truth and fairness, completeness and accuracy of the financial reports prior to making them available to any parties.

Financial statement fraud schemes typically involve director level management

This is because the directors tend to secure their position as directors, as they are accountable to the appointing authroties.

In private sector appointing authority are members/shareholders of the company

Public Sector entities appointing authority is government.