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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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