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FINANCIAL STATEMENT FRAUD IN AN
ORGANIZATION: PROBLEMS AND SOLUTIONS
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND
OF THE STUDY
The web star dictionary defines fraud as “an
intentional deception to cause a person to give up property or lawful right,
which could also mean deceit, trickery or cheating. According to statement of
internal audit standard No2 of the Institute of Internal Auditors, USA, fraud
is defined as an array of irregularities or legal acts characterized by
international deception.
The world of
financial statements fraud needs no introduction. The practice of manipulating
the financial statements of companies to bolster their position is act new but
got to a height in Enron and world.com saga (Razace.2002).
According to
the Association of Certified Fraud Examiners (ACFE), financial statement fraud
is the deliberate misrepresentation of the financial condition of an enterprise
accomplished through the intentional omission mount in the financial statement
of organization to deceive financial statements users. It caused the accounting
firm a very big embarrassment and saw the demise of the world leading
accounting firm, Author Anderson (AA) (Isaac, 2008.2).
The current business environment, have pushed
the top of many companies and organization with paying attention to how to make
the financial statement look better in order to attract investors or paint a
good picture of their companies, using aggressive accounting (Anumaka; 2007:1)
Fraud is classified into two categories:
* Fraud involving the manipulation of the
records and accounts
*
Fraud usually by employees involving the theft, un-appropriation or
embezzlement of companies funds in the form of cash or its other assets usually
by junior staffs.
Apart from the
problem of scarce resource, organization run the typical risk of fraud and
errors even more problems solution to fraud is not sought far. In this project
work, problems of financial statement fraud will be extensively assessed with
its solution in relation to organization.
1.2.
STATEMENT OF THE PROBLEM
The current business environment and even
more economic recession, have in recent times pushed the top management of many
organization into paying attention to
how to make financial statements of their companies look better in order to
attract investors by manipulating figures in their financial statement either
by increasing or decreasing the figures depending on what they want to achieve
at the moment using aggressive or creative accounting otherwise known as
financial statement fraud (Anumak, 2007).
In recent times, fraud has been discovered to
pose a big threat on organizations. It is a big business risk which can incur a
very big cost leading to a lot of problems of which one of the problems is loss
of confidence of shareholders and the public on the company. This research work
tries to solution to financial statement fraud. Another area on which the
research work will focus on “is auditor involvement in solving fraud problems.
We will also look into corporate governance as a tool in fraud prevention cost
of fraud will be discussed too.
Fraud is a very big business risk which if not
prevent will have a very big negative impact on organizational performance.
1.3 OBJECTIVE OF THE STUDY
The major purpose of this research work is
the assessment of the problems of financial statement fraud on organizations
with solution to it. Areas like reason for fraud, types and implication of
costs of fraud will be discussed.
Since auditors are to express their opinion on
the financial statement of an enterprise as to truth and fairness of such
statement, the internal auditor’s role in the prevention of fraud will be
looked into. The use of corporate governance as a tool on the fraud prevention
will be discussed or properly examined plus the current effort of the Nigerian
Accounting Standard Board to curb fraud.
1.4 RESEARCH QUESTIONS
Some
research questions that have been drafted in financial statement frau in an
organizations: Issues and solution are as follows:
Is financial
statement fraud a problem in an organization?
Can I
prevent fraud?
How can I
prevent fraud?
What are the
cost of fraud?
Who can
significantly reduce fraud in an organization?
Is auditor
impropriety a yardstick to fraud?
Who can be
held liable for fraud?
Can I detect
fraud?
Fraud can be
prevented/there is solution to fraud?
1.5 RESEARCH HYPOTHESIS
As a means of solving the problems mentioned
in the research questions, the following hypothesis are formulated:
H0: There is no solution to fraud in an
organization
H1: There is a solution to fraud in an
organization
H0: There are no problems associated with
fraud
H1: There are
problems associated with fraud
1.6 SIGNIFICANCE OF THE STUDY
As the major objective of this write-up is the
assessment of problems/costs of financial statement fraud on organizations with
solution to it, the study will benefit various parties. One of the benefits is
to the management of business organizations. It will help them to know the
effect/cost of fraud, how to prevent it, even how to recognize fraud. It will
also benefit investors, share-holders, financial information users etc. who may
resort to audited financial state of organizations to take investment
decisions. It will also be readily available for academic consumption.
1.7 LIMITATION OF THE STUDY
The research study was carried out under a
tight schedule. It was undertaken within a short time and was carried out
intermittently with lectures and private studies.
There was also a problem of data collection
due to reluctance on people’s side to provide information. Also another
limitation is the insincerity of some respondents in the filling of the
questionnaire. For instance, some of the questionnaires were revisited through
oral interviews. Financial constraint was another limitation as a student.
1.8 DEFINITION OF TERMS
Fraud: An intentional deception to cause a person to
give up property or some legal right, which could also mean deceit, trickery
and cheating.
Financial
Statement: A yearly book that contains
summarized information of the form’s affairs organized systematically.
Audit: A
person assigned to carry-out an independent examination of evidence supporting
the financial statement of an organization.
Corporate
governance: A set of process, customs,
policies, laws etc affecting the way a corporate is directed, administered or
controlled.
Financial
statement fraud: The deliberate
misrepresentation of financial condition of an enterprise accomplished through
the intentional misstatement of amount in the financial statement to deceive
financial statement users.
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