FRAUD EXAMINATION

ALBRECHT, ALBRECHT, & ALBRECHT

Financial Statement
Fraud

CHAPTER 11
 Learning Objectives
1. Understand the role that financial
statements play in U.S. businesses.
2. Describe the nature of financial
statement fraud.
3. Become familiar with financial
statement fraud statistics
4. See how financial statement frauds
occur and are concealed.
 Learning Objectives
5. Understand the framework for
detecting financial statement fraud.
6. Identify financial statement fraud
exposures.
7. Explain how information regarding a
company’s management and directors,
nature of organization, characteristics,
relationship with others, and financial
results can help assess the likelihood
of financial statement fraud.
What Are Some Problems
with Financial Statements?
Review the Fraud Triangle.
What Are the Elements of
the Perfect Fraud Storm?
What Are the Elements of
the Perfect Fraud Storm?
 Financial Statement Fraud
Statistics.
Infrequent
300 over 10 years
Costly
Last 23.7 months
Mean $25 million
CEO in 72%, CFO, COO
Computer hardware/software
78% of firms on NASDAQ
 Financial Statement Fraud
Statistics.
Most had no audit committee
Most directors were insiders
Family relationships between directors
56% audited by Big Eight or Big Six
25% changed auditors during fraud
Significant number of class action
suits
Many resignations-few served jail time
What Are the Motives for
Financial Statement Fraud?
Discuss Detecting Financial
Statement Fraud.
Complete the Fraud
Exposure Rectangle.
Fraud Exposure Rectangle

1 2

3 4
Discuss Management &
Directors.
Comment On & Explain
Relationships with Others.
Describe Questionable
Organizations & Industries.
List What to Ask About
Organization & Industry.
What Approach is Taken to
Examine Financial Statements?
What Approach is Taken to Examine
Financial Statements? (cont’d)
 Define the Acronyms.

1. COSO is

2. SEC is

3. GAAP is
 Match Terms &
Definitions.
10-K Quarterly report publicly traded
companies file with SEC
Government Agency responsible
10-Q for regulating stock trading &
financial Statements of Public
companies
Annual report publicly traded
AAER
companies file with SEC
Document released by SEC
when a company commits
SEC financial statement fraud
 Match Terms &
Definitions.
Financial It recommended
Statement changes in financial
Fraud statements

Intentionally
Financial misstating financial
Statements statements

Reports summarizing
Treadway cash & profits of an
Commission organization