There are two common causes of business and accounting fraud. A failure of indiv
ID: 2547528 • Letter: T
Question
There are two common causes of business and accounting fraud.
A failure of individual character
A culture of greed or ethical indifference within an organization
Write a brief (3 paragraph) memo describing how these two factors could lead to accounting fraud. (usually, posts are 2 paragraphs, but I want you to address each bullet as 1 paragraph each, then the last paragraph should be a recap of your answers etc).
Include any personal experience you may have and/or internet research on actual companies.
Explanation / Answer
1. Failure of an individual character especially at the level of top management can lead to an accounting fraud since the person could use his/her influence to get the worng entries done willfully with an intention to gain out of it maliciously. There may be a group of people with similar motives can also lead to accounting fraud if their objective is same.
2. Again there may be a case of one of the directors out of board of dirctors out of ethical differences has malicious intent of gaining out of carrying out wrong accounting and financial reporting which would lead eventually to fraud.
For both the cases, the example of Satyam Computers Services Limited can be quoted where On January 7, 2009, Mr. Raju disclosed in a letter, as shown in Exhibit-2, to Satyam Computers Limited Board of Directors that “he had been manipulating the company’s accounting numbers for years.” Mr. Raju claimed that he overstated assets on Satyam’s balance sheet by $1.47 billion. Nearly $1.04 billion in bank loans and cash that the company claimed to own was non-existent. Satyam also underreported liabilities on its balance sheet. (Example has been referred from Satyam Computers Services Limited case study from Internet).
3. Basis above explanation and example, we can safely say that any fraudlant Accounting and Financial Reporting activity would jeoparadise interest of stakeholders like shareholders, regulators, and public at large. It's can very well be mitigated through stronger internal controls and strict compliance to various legislations like Sarbanes Oxley Act which had come in force to prevent such accounting scandals.