Fraud Prevention and Detection of Financial Statements

Author: Rezaei/Zhu Guohong
Publisher:
Publish Date: 2005-12-01
Features: Since the Enron scandal, financial statement fraud has become a focal point for American investors, the government, and regulatory authorities. This book is a significant work published in this context. The authors first define financial statement fraud as a crime, then break away from the traditional conventions of accounting discourse and examine it within the corporate governance system composed of the board of directors, audit committee, senior management team, internal auditors, external auditors, and regulatory agencies. They argue that strengthening corporate governance is the fundamental way to prevent, detect, and correct financial statement fraud. The book meticulously analyzes the roles and behaviors of each component of the corporate governance system in preventing and detecting financial statement fraud, provides an insightful examination of the prevention, detection, and correction of financial statement fraud in the digital economy environment, and offers a compelling discussion on the benefits, challenges, and costs of the Extensible Business Reporting Language (XBRL). The exploration of fraud examination practices and educational issues in the book is particularly timely and relevant. By incorporating well-known public companies and skillfully integrating them with the guidelines of standard-setting organizations such as the AICPA and SEC, the book provides theoretical and practical advice for management and auditors. All key topics are thoroughly analyzed in this book. The book's theoretical framework is innovative, and its content is highly valuable as a reference. It is an ideal read for corporate executives, independent directors, social intermediary professionals, academics, financial statement users, MPAcc, MBA, and EMBA students.
[Preface] At the dawn of the new century, financial statement fraud has become an increasingly serious issue of concern for businesses, governments, and investors. In fact, the threat posed by this issue has eroded confidence in capital markets, corporate leaders, and even the respected auditing profession. More notably, auditors have suffered a heavy blow due to the perception that they are unable to detect significant fraud. Billions of dollars in fines for CPA firms have become commonplace. Many who know about auditing procedures say that the auditing methods we have known for the past 75 years are now obsolete. But that is not the end of the story. The reason is that if an audit cannot detect these massive crimes, what is the benefit of placing it at the top of our public companies? In 1984, when the U.S. Supreme Court declared that independent auditors were essentially the public's "watchdog," it also acknowledged the premise implied by this statement. However, in the 20 years following that declaration, we have seen too many "watchdogs" sleeping, toothless, or too old to chase prey. Moreover, over the past 30 years, the largest CPA firms have been undergoing a shift in their business models: they no longer earn the majority of their income from traditional auditing services but rather from selling and providing products to each of the clients they audit. In short, critics say, the "watchdog" is too close to the crowd it can see.