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Financial Statement Fraud
Financial statement frauds are caused by a number of factors occurring at the same time, the most significant of which is the pressure on upper management to show earnings.
Preparing false financial statements is made easier by the subjective nature of the way books and records are kept. The accounting profession has long recognized that, to a large extent, accounting is a somewhat arbitrary process, subject to judgment. The profession also indirectly recognizes thatnumbers are subject to manipulation. After all, a debit on a company’s books can be recorded as either an expense or an asset. A credit can be a liability or equity. Therefore, there can be tremendous temptation, when a strong earnings showing is needed—to classify those expenses as assets, and those liabilities as equity.
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