Examining the situation and causes of account fraud Essay

In this essay I am traveling to depict the state of affairs and causes of accounting fraud, which is considered to be the most serious job in the accounting country. Most of the accounting dirts have been caused by fraud. Compared to other jobs misrepresentation is more unsafe and covert.

Many companies have produced a rigorous system to forestall fraud, and about every state has peculiar Torahs to penalize dishonest people. But the state of affairs has non been controlled basically. Not merely in little companies, but besides in listed companies there are fraud jobs. In December, 2001, the universe ‘s largest natural gas and energy wholesale traders, Enron Corporation, whose assets reached 49.8 billion U.S. dollars, all of a sudden applied for bankruptcy protection to the United States Bankruptcy Court.

This instance was the largest bankruptcy instance in U.S. history. The chief cause of this instance was accounting fraud. Both Enron Corporation and its hearer, Arthur Andersen, went bankrupt in this recognition crisis ( John C. Coffee Jr. 2002 ) . It is noticeable that in recent old ages betterment has been made by both companies and society to command fraud.

These developments have ameliorated fraud jobs.There are three notable jobs about accounting fraud. First, directors normally focus on their ain fillip and the company ‘s involvements, without sing the involvements of minority stockholders and investors, which worsens the fraud state of affairs. Second, many endeavors do non implement the internal control system to forestall accounting fraud. In these endeavors possibly there was a system which was created to forestall and command the accounting fraud, but the company did non genuinely take good advantage of this control strategy.

Third, the societal audit should be independent. In fact these hearers ever work with the managers. Because this fact and other economic grounds such as possible benefits, independency is abandoned, and societal audit can non command fraud presently.Some solutions have been worked out to guard against the listed company ‘s accounting fraud. First, the company ‘s shareholding construction has been improved. This is the critical measure in which a company could set up a new common balance formation between the stockholders, board of managers and directors. So it is possible to forestall them from fraud, malpractice and maltreatment of power. A perfect administration construction can beef up corporate administration, better the company ‘s operating public presentation and the quality of the fiscal statements and kerb accounting fraud.

Harmonizing to a fraud theory, some listed companies require the sum of capital parts in order to protect other investors ‘ involvement and minimise the possibility of fraud ( AHMED.R.B 1992 ) .

Furthermore, it is of import to set up a more standardised accounting system, better the internal fiscal control system and scrutinizing system and increase the degree of information revelation which means cut down dissymmetry of information. In this manner, fraud can be discovered and solved at the really get downing in the accounting office. There has been less accounting fraud and use caused by directors. This betterment has benefited from the application of market monetary values and carnival values which are portion of the standardised accounting system in fiscal studies ( CHRISTIAN.L DIETER.P ANTHONY.

H 2004 ) . Finally, societal audit has a clear duty to accounting fraud. An audit has two consequences, one is to detect mistakes and fraud which have taken topographic point, the other is to avoid mistake and fraud occurrence ( ALAN.P 1994 ) . Although the hearers ‘ primary duty is to show their positions about if the company ‘s fiscal information is just or non, instead than specifically discover fraud or mistake. However, the happening of mistakes and fraud and fiscal information is ever associated. It is hard to conceive of a study including mistakes and fraud but is still just.

In order to heighten audit independency, the Audit Committee and the Supervisory Board have been jointly commissioned by the accounting house to scrutinize the accounting statements of endeavors and the execution of audit alternation system. In add-on, it has been prohibited that an accounting house audit and consult for the same company and explicate a sensible compensation mechanism.The position of accounting fraud and solution of this state of affairs have been analyzed in this essay. In decision, companies, society and investors are working together in order to better this serious job.

Owing to the fact that fraud is related to three facets including concern direction, fiscal systems and societal auditing, the fraud-prevention systems have been created and applied in all these countries to control the happening of fraud. The decrease of fraud instances in recent old ages are owing to these developments. In my personal position, which is based on what I have wrote, I believe if planetary authoritiess were to increase the strength of fraud punishment, the economic environment would be more contributing to the development of concern.