I’ve chosen for an article about the accounting fraud in companies because of the economic crisis.
There come more and more accounting irregularities to the surface in the U.S because of the persistent recession.
The shares of Apollo Group Inc are decreased with 18% after they had announced an informal investigation concerning their revenue recognition. Apollo is just one of many big companies who have published that they have accounting issues lately.
The Internet retailer Overstock.com have also noted that they were investigated by the government regulators related some expenses. The company changed their results in 2006 and 2008.
Statistically, you can see that there is a recession and that there is a higher financial pressure on companies. The employees are also motivated to exaggerate and fiddle with the accounting or to fraud to achieve some objectives, certainly in these difficult economic times.
Almost a third of the corporate executives expects that fraud and misbehavior will increase in companies this year. The most financial adjustments are related to costs, expenses and revenue recognition problems.
Investors usually don’t know that there is something wrong because the information is often vague. Because of this, it has a minimum impact on the share prices until the investors really know what’s going on.
A reason whereby there are more and more accounting irregularities who come to the surface is that it’s almost the end of the year and companies should close their books.
Regulators at het SEC and other government audit institutions can cause an increase of the detection of fraud because they focus on investigating tips.
Unfortunately, there is still too much latitude in the universally accepted accounting principles and companies because there is so much at stake whereby they grip what they can to fix their figures.
I think that the people and companies are so discouraged that they would do anything to ‘safe’ the situation. If you had a company and the figures are suddenly increasing a lot because of the economic crisis, I think that many would be dismayed and would be able to do such stupid things like fiddle with the bookkeeping. This is a normal reaction of many people but not the smartest one and certainly not without consequences.
These things will definitely happen all the time, also in better economic times but there is off cause more and stringent investigation when it goes economically worse and auditors will faster have questions with some figures whereby they double check it and in this way fraud gets detected.
You can read the article on: http://www.reuters.com/article/ousiv/idUSTRE59S01I20091029?pageNumber=2&virtualBrandChannel=0
Greet!
Livine
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Dear Livine
BeantwoordenVerwijderenFirst of all your text is very well written. It’s a nice topic about corporate finance. It was nice to read.
I believe that there is more fraud during the financial crises. There are a lot of enterprises that take a great risk. They want to make a good impression on the investors. Because then these investors think that the enterprises have a lot of good figures and they are a good company. They are an enterprise which can grow. So they invest in an enterprise that isn’t actually good.
I agree that you’re saying that there is always fraud but especially during the financial crises. Because then there are a lot of enterprises that have problems. They want to rescue their enterprise by committing the fraud. But they take a great risk. This fraud can be discovered.
Of course, there is more control of the accountants during the financial crises. The accountants also know that there are a lot of enterprises commit fraud. So they check double the figures.
Greet Annelies