Financial Statement Fraud: Strategies for Detection and InvestigationHardback Wiley Corporate F&A (Unnumbered)
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- Publisher: John Wiley & Sons Inc
- Format: Hardback | 288 pages
- Dimensions: 157mm x 231mm x 33mm | 522g
- Publication date: 4 January 2013
- Publication City/Country: New York
- ISBN 10: 1118301552
- ISBN 13: 9781118301555
- Sales rank: 961,212
Valuable guidance for staying one step ahead of financial statement fraud Financial statement fraud is one of the most costly types of fraud and can have a direct financial impact on businesses and individuals, as well as harm investor confidence in the markets. While publications exist on financial statement fraud and roles and responsibilities within companies, there is a need for a practical guide on the different schemes that are used and detection guidance for these schemes. Financial Statement Fraud: Strategies for Detection and Investigation fills that need. * Describes every major and emerging type of financial statement fraud, using real-life cases to illustrate the schemes * Explains the underlying accounting principles, citing both U.S. GAAP and IFRS that are violated when fraud is perpetrated * Provides numerous ratios, red flags, and other techniques useful in detecting financial statement fraud schemes * Accompanying website provides full-text copies of documents filed in connection with the cases that are cited as examples in the book, allowing the reader to explore details of each case further Straightforward and insightful, Financial Statement Fraud provides comprehensive coverage on the different ways financial statement fraud is perpetrated, including those that capitalize on the most recent accounting standards developments, such as fair value issues.
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GERARD M. ZACK, CFE, CPA, CIA, is a fraud examiner and forensic accountant with more than thirty years of experience performing audits and investigating fraud. In addition to providing antifraud services to clients, he serves on the faculty of the Association of Certified Fraud Examiners, where he conducts antifraud training on financial statement fraud and other topics. He has also spoken at AICPA and IIA events.
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"Education is by far the most important defensive weapon against frauds of all kinds. . . . One would be hard-pressed to find a better resource than Gerard Zack's "Financial Statement Fraud: Strategies for Detection and Investigation." "--from the Foreword by Dr. Joseph T. Wells, CFE, CPA Founder and Chairman, Association of Certified Fraud Examiners Investigate, detect, and avoid the costliest of all frauds ""Financial Statement Fraud" is the forensic accountant's guide to all of the GAAP and IFRS fraud schemes known to man, including which standards they violate along with actual case studies from settled cases. I highly recommend this book to fraud examiners, auditors, and audit students. Financial fraud schemes transcend national boundaries, and finally we have a forensic accounting book that does too. "Financial Statement Fraud" belongs in every accountant's library. It details accounting fraud schemes by category, by standard (GAAP or IFRS), and provides interesting case studies of how the books were cooked without being caught during the audit process. It's written for the practicing forensic accountant but perfect for audit students too. If you enjoy solving cases of cooked books and crooked CFOs, then this book is for you!" --Harry Markopolos CFA, CFE, bestselling author of "No One Would Listen: A True Financial Thriller" "In his concise style, Mr. Zack provides accountants and investigators a clear road map to uncovering the most common frauds hidden in the financial statements of corporations and nonprofit organizations, citing real-world examples to illustrate each scheme he presents. We encountered several variations on these themes in our investigations of the Icelandic financial crisis of 2008. It is my hope that this book heralds the beginning of a new era of closer scrutiny of financial statements by auditors, investors, and regulators." --Jared Bibler, CFA, Office of the Special Prosecutor, Iceland, and formerly manager, FME Special Investigation Team, Iceland "This book is a must-read for anybody relying on financial statements. Gerry provides a well thought out approach to dealing with the complex subject of fraud using many illustrative examples." --Wayne Berson, CEO, BDO USA, LLP
Although financial statement fraud is the least frequently encountered fraud, it is by far the most costly, at a median loss of $1 million per case. Yet, the indirect losses from financial statement fraud--jobs, support, morale, and loyalty--are also significant and almost impossible to measure. Learn how to spot the warning signs before the damage is done. "Financial Statement Fraud" explores the many different methods of perpetrating financial statement fraud, the accounting principles that are exploited, and the methods to detect and prevent fraud in any organization. Assuming an understanding of basic financial statements and the purpose each serves, as well as basic accounting concepts, author Gerard Zack highlights the many different types of fraud schemes. "Financial Statement Fraud" provides auditors, fraud investigators, government agencies, and investment analysts with detailed descriptions of the most common or emerging schemes involving the preparation and issuance of fraudulent financial statements. Filling the need for practical guidance on financial statement fraud and the roles and responsibilities within companies, "Financial Statement Fraud" features: References to pertinent U.S. and international accounting standards violated in the preparation of fraudulent financial statements A wide range of detection tools, from the simplest of ratios to complex analyses and tests, as well as fraud indicators A comprehensive, global approach that includes U.S. GAAP and IFRS Red flags and ratios to help you detect financial statement fraud schemes Coverage of auditor liability: when is an auditor liable for failing to detect fraud? Real-world cases that illustrate many of the fraud schemes featured throughout the book A companion website includes copies of SEC Accounting and Auditing Enforcement Releases (AAERs), complaints that were filed, and various other documents associated with most of the cases cited in the book. These documents provide all of the details associated with each case, enabling researchers to perform their own analysis to more fully understand the schemes and relate them to the detection tips provided in the book. Financial statement fraud can cost an organization more than just revenue. Arm yourself with the knowledge to identify where it happens, when to expect it, and how to detect it with the expert guidance found in "Financial Statement Fraud."
Table of contents
Foreword xiii Preface xvii Acknowledgments xxi PART I REVENUE-BASED SCHEMES 1 Chapter 1 Introduction to Revenue-Based Financial Reporting Fraud Schemes 3 Revenue Recognition Principles 3 Changes Proposed by FASB and IASB 5 Overview of Revenue-Based Schemes 6 Chapter 2 Timing Schemes 9 Alteration of Records 9 Shipping Schemes 10 Percentage of Completion Schemes 12 Improper Estimates of Revenue Recognition Period 15 Multiple-Element Revenue Recognition Schemes 17 Customer Loyalty Programs 22 Channel Stuffing 24 Bill and Hold Schemes 27 Sales with Right of Return 29 Improper Pushing of Current Revenue to Future Periods 30 Use of Reserves as a Rainy Day Fund 32 Chapter 3 Fictitious and Inflated Revenue 33 Fictitious Revenue Schemes 33 Sales to Related Parties 37 Infl ated Revenue Schemes 41 Consignment or Financing Arrangements 43 Chapter 4 Misclassification Schemes 47 Recording Financing Arrangements as Revenue 47 One-Time Credits Reported as Revenue 49 Sales Incentive Schemes 50 Chapter 5 Gross-Up Schemes 57 Agent versus Principal 58 Barter and Round-Trip Transactions 59 Phony Revenue and Expenses 61 PART II ASSET-BASED SCHEMES 63 Chapter 6 Improper Capitalization of Costs 65 Start-Up Costs 66 Research and Development Costs 67 Property and Equipment 68 Software Development and Acquisition Costs 71 Website Costs 73 Intangible Assets 75 Advertising Costs 77 Other Deferrals and Prepaid Expenses 79 Inventory Capitalization Schemes 80 Inventory Flow Assumptions 81 Chapter 7 Asset Valuation Schemes 85 Fictitious Assets 85 Inventory Valuation Schemes 86 Inflating the Basis of Property and Equipment 88 Inflating the Basis of Assets Acquired in Noncash Transactions 89 Assets Acquired from Related Parties 92 Understating Depreciation and Amortization Expense 93 Investment Property 95 Improper Valuation of Investments Financial Assets 96 Loans 104 Equity Method Investments 108 Proportionate Consolidation 109 Improper Classification or Amortization of Intangible Assets 111 Impairment Losses Nonfinancial Assets 112 Investments in Insurance Contracts 115 Chapter 8 Fair Value Accounting 117 Fair Value Considerations 117 Methods of Measuring Fair Value 118 Internal versus Externally Developed Valuations 124 Inputs Used in Measuring Fair Value 127 PART III EXPENSE AND LIABILITY SCHEMES 129 Chapter 9 Shifting Expenses to Future Periods 131 Timing Schemes Involving Liabilities 131 Accounts Payable 131 Compensated Absences 132 Contingent Liabilities 133 Accrued Compensation 137 Improper Use of Liability Reserves 138 Chapter 10 Omissions and Underreporting of Liabilities 141 Debt 141 Guarantees 146 Pension Liabilities 149 Conditional Asset Retirement Obligations 152 PART IV OTHER FINANCIAL REPORTING SCHEMES 155 Chapter 11 Consolidations and Business Combinations 157 Fraudulent Reporting Involving Consolidations 157 Business Combinations 164 Chapter 12 Financial Reporting Fraud as a Concealment Tool 171 Financial Statement Fraud to Conceal Asset Misappropriations 171 Financial Statement Fraud to Conceal Illegal Acts 174 Chapter 13 Financial Statement Fraud by Not-for-Profit Organizations 177 Inflating the Value of Non-Cash Contributions 179 Improperly Reporting Contributions Raised for Others 179 Netting the Results of Fund-Raising Events 180 Improper Allocation of Costs Associated with Joint Activities 182 Misclassification of Expenses 185 Chapter 14 Disclosure Fraud 187 Categories of Disclosure Fraud 189 Common Disclosure Risks 189 PART V DETECTION AND INVESTIGATION 197 Chapter 15 Detecting Financial Statement Fraud 199 Motives for Financial Statement Fraud 200 Fraud Risk Indicators 202 Internal Control Indicators 202 Chapter 16 Financial Statement Analysis 209 Use of Analytical Techniques to Detect Fraud 209 Horizontal Analysis 210 Vertical Analysis 211 Budget Variance Analysis 212 Chapter 17 Ratio Analysis 215 Research on Ratio Analysis 216 Use of Operating Ratio Analysis to Detect Financial Statement Fraud 217 Another Useful Measure: Working Capital to Total Assets 225 Chapter 18 Other Detection Procedures 227 Analysis Utilizing Multiple Ratios 227 Ratios Involving Nonfinancial Data 231 Other Information and Disclosures in Financial Statements 232 Understandability of Financial Statement Disclosures 234 Testing of Journal Entries 235 Chapter 19 Fraud or Honest Mistake? 239 The Smoking Gun 240 Witnesses 240 Altered Documents 241 Multiple Records 242 Destruction of Evidence 242 Actions That Contradict Recommendations 243 Patterns of Behavior 244 Personal Gain 244 There s No Other Explanation for It 244 Chapter 20 Assessing (or Minimizing) Auditor Liability 245 Litigation against Auditors 246 Concealment from the Auditors 247 Auditing Standards 248 Consideration of the Risks of Material Misstatement 249 Improper or Inadequate Use of Analytical Procedures 254 Auditing Accounting Estimates and Fair Values 257 Revenue Recognition Risks 263 Insufficient Consideration of Related Party Transactions 266 Auditing Disclosures in the Financial Statements 266 Overreliance on the Management Representation Letter 267 Appendix: Financial Statement Fraud Indicators 269 Bibliography 275 About the Author 277 About the Website 279 Index 281 Index to Cases 287