Role of Auditors & Directors in Fraud

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Impacts and Losses Caused By the Fraudulent
and Manipulated Financial Information on Economic Decisions
Tak ISA

1

Abstract
Nowadays the effects of the fraudulent and manipulated financial information have been more controversial. We should take into consideration that the financial losses caused by fraudulent or manipulated financial information are remarkable. Preventing the fraud in the financial information has been an important issue by auditors all over the world. As the American economy is the dominant economy may cause and affect the capital market mostly all over the world. In the last decade we can see the financial losses caused by the fraudulent and manipulated financial information rather big. Today’s world has been affected by frauds and manipulation of the financial information. An investment decision based on false financial information causes the investors to suffer losses as was experienced in Enron and WorldCom cases. Financial information has, certainly, an important positive or negative effect in economic decisions. Positive or negative effects of financial information on economic decisions depend on reliability of the financial information. This paper aims to show the impacts of fraudulent on the financial information, effects on economic decision and what we should do for preventing the fraudulent or manipulation on the financial information. Keywords: Financial information, fraudulent, manipulation, decision. JEL classification: M41, G14, G15

Introduction
Today’s economy is rather fragile and sensitive. Especially any recession in developed countries lead the global economy to recession also like dominos as experienced in 2009. Investigations show that the effects of manipulated financial information are immense. Fraudulent financial information damages today’s economy while leading users of financial information to make unhealthy decision on economy. Manipulators try to get maximum benefit with limited resources and this action cause to manipulate the financial information by senior managers. Louwers (2007) declares that the fraud consists of knowingly making material misrepresentation of fact, with the intent of inducing someone to believe the falsehood and act on it and suffer a loss or damage. The transparency, reliability and accurate information allow users of the financial information such as investors, 1

Tak ISA, Bucharest Academy of Economic Studies, Romania,
E-mail : isatak23@gmail.com

Review of International Comparative Management

Volume 12, Issue 5, December 2011 929

creditors to make intelligent decisions. “Audited financial statements provide the foundation for securities markets. Audited financial statements allow investors to make decisions on whether to buy, hold, or sell a particular security” (SEC, 2002a). “Accurate information also improves the quality of markets by allowing markets to discover the true price at which specific securities trade” (SEC, 2002b). The cost of losses on real economy caused by fraudulent or manipulated financial information cannot be calculated by economists. But according to some investigation we can have an idea on economic losses caused by the fraudulent and the manipulated financial information. The causes of manipulation financial information are remarkable. We can classify some of the causes manipulating the financial information.

• Weakness Structure of the Company’s Management.
• Managers` Interests and the Partnership Structure of the Companies. • Inadequate Internal Control System.
• Accrual Accounting and the Flexibility of the Accounting Standards. All the causes given above are very important and should be expressed separately in order to have an idea for manipulated financial information how the fraudulent is started in the financial information.

1. Financial Information and Its Importance
Financial information is a touchstone of the economy. Lack of the financial information causes to take no decision on...
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