SUBJECT: Forensic Accounting
In this memorandum, I will explain the reasons as to why managers feel more pressure than in past years. Also, I will discuss several ways that managers can commit fraud for personal gain, and how these schemes are eventually caught by forensic accountants. Rising Pressure
There has been a growing trend to hold managers accountable for their company’s performance. Wall Street analysts have become enemies of CEOs. These analysts set target quarterly as well as yearly earnings for these companies that managers are expected to meet. Failure to do so results in being replaced with more competent and reliable individuals that can meet these targets. This pressure to move an entire company in a positive direction forces managers to commit fraud. As Mr. Richmond explained, occupational fraud is the use of one’s position for the sole purpose of personal benefit through the deliberate misuse of company assets or funds. There are certain personal incentives that encourage managers to feel pressured to commit fraud for their own benefit. Such personal incentives include the use of company funds for personal consumption such as family getaways or salary increases. Fraud Schemes
One way in which managers can “cook the books” is by including assets on the balance sheet that do not exist or income on the income statement that is fabricated. For the average investor looking to invest money into a solid company, these additions can encourage the individual to invest large sums of money into a company that may actually be performing very badly. Another scheme that managers employ is the cookie jar scheme. Managers will defer revenues or expense from one period to another for various purposes. Expenses may not be capitalized in a given period to due unforeseen economic circumstances and can be deferred to future periods where earnings are expected to be higher. The same can be said for deferred revenues. Revenues can be deferred...
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