Financial Fraud
Donna Sanders
Financial Statement Fraud
Week 12
There are many things that can motivate financial statement fraud. Taking a look at Donald Cressey’s hypotheses which is now known as the fraud triangle depicts the certain criteria for the mind frame of the fraudster. The fraud triangle is a theory that consists of perceived pressures, perceived opportunity, and rationalization. It gives us the different pressures placed on individuals that would make them consider “cooking the books.” It also demonstrates where the possible opportunity lies so that we may take precautions to eliminate the opportunity. Last, it demonstrates how a fraudster rationalizes with themselves to make committing the fraud okay. Donald Cressey believes all three elements must be present for fraud to occur. Upper management is usually the focus of financial statement fraud because financial statements are done at the management level. So in this case financial statement fraud was committed by the Chief Executive Officer and Chief Financial Officer. A person in such positions as CEO and CFO can be motivated to commit financial statement fraud because of perceived personal or corporate pressures such as maintaining personal income or wealth that stems from living beyond their means, preserving status or control- whether it be the company or a department within the company, particularly if bad performance will lead to termination, or to conceal true business performance especially if the company isn’t performing well. Another pressure could be financial goals placed on the company as a whole or through its departments. The most consistent pressure for top executives is that they sometimes find it hard to meet Wall Street expectations. Instead of admitting they are unable to meet the expectations they “cook the books” to make it appear as if the company reached its financial goals. Perceived opportunity occurs when the fraudster thinks that they can commit the crime without being
Financial Statement Fraud
Week 12
There are many things that can motivate financial statement fraud. Taking a look at Donald Cressey’s hypotheses which is now known as the fraud triangle depicts the certain criteria for the mind frame of the fraudster. The fraud triangle is a theory that consists of perceived pressures, perceived opportunity, and rationalization. It gives us the different pressures placed on individuals that would make them consider “cooking the books.” It also demonstrates where the possible opportunity lies so that we may take precautions to eliminate the opportunity. Last, it demonstrates how a fraudster rationalizes with themselves to make committing the fraud okay. Donald Cressey believes all three elements must be present for fraud to occur. Upper management is usually the focus of financial statement fraud because financial statements are done at the management level. So in this case financial statement fraud was committed by the Chief Executive Officer and Chief Financial Officer. A person in such positions as CEO and CFO can be motivated to commit financial statement fraud because of perceived personal or corporate pressures such as maintaining personal income or wealth that stems from living beyond their means, preserving status or control- whether it be the company or a department within the company, particularly if bad performance will lead to termination, or to conceal true business performance especially if the company isn’t performing well. Another pressure could be financial goals placed on the company as a whole or through its departments. The most consistent pressure for top executives is that they sometimes find it hard to meet Wall Street expectations. Instead of admitting they are unable to meet the expectations they “cook the books” to make it appear as if the company reached its financial goals. Perceived opportunity occurs when the fraudster thinks that they can commit the crime without being