Companies are required by law to report basic financial statements allowing investors to make informed decisions. Accounting frauds occur when businesses intentionally which deceives lenders, investors, and other parties by providing inaccurate information.
Fraudulent account practices and the manipulation of data have many reasons and can take on many forms. The manipulations of financial reports can both benefit executives on a personal level by increasing paychecks, or bring companies into a better light by hiding losses or overstating the businesses’ earnings. By overstating revenue, for example by posting sales before they are made, before conditions of a sale are met or prior to payment, or by understating expenses keeping certain liabilities “off the books” an unsafe and unregulated financial environment is created.
Other examples of accounting fraud include:
Overvaluing and overstating the value of capital assets
Failing to record appropriate depreciation expenses
Understating financial liabilities by reporting an amount less than the true value of the underlying obligation
Providing inaccurate or partial information to investor inquiries and/or auditors.
All types of accounting fraud can cause serious consequences like stock price fluctuations and liquidity crisis as well as personal losses for investors or other parties.