Financial Statement Fraud Flashcards
Financial Statement Fraud (Definition)
Deliberate misrepresentation of the financial condition through intentional misstatement or omission on financial statements
Two Types of Financial Statement Fraud
Overstated assets or Understated liabilities
Five Classifications of Financial Statement Schemes
- Fictitious revenues
- Timing differences
- Improper asset valuations
- Concealed liabilities/expenses
- Improper disclosures
Fictitious Revenues
recording of sales or goods that did not occur
Common sign of fictitious revenues
mysterious accounts receivable long overdue
Two Types Improper Asset Valuation
- Inventory valuation
- Accounts receivable
What happens on Inventory valuation
fail to write off inventory results on overstated assets
What happens in Accounts receivable
fake accounts
failure to collect bad debt
What is an example of Improper Disclosure
Contingent Liability
What is Contingent Libaility
potential obligations that will materialize only if certain events occur
What is subsequent events
events occurring or becoming known after close of period – should be disclosed
What types of accounting changes must be disclosed to avoid misleading financial statement users
- Accounting Principles
- Estimates
- Reporting entities
Vertical Analysis
analyzing income statement, balance sheet or SCF over period, % specified base value
Horizontal Analysis
analyzing percentage change in INDIVIDUAL financial statement across more than accounting period
Current Ratio
Current Assets/Current Liabilities
