Financial Crimes & Institutional Security



Financial Crimes & Institutional Security

Introduction

The selected organization is HSBC. HSBC conduct its operations in almost every part of the part. As a result, the global recession and downturn has also affected the company in a negative manner. For instance, the company was affected by the bad-debt charges in personal finance, especially in North America. Although that issue has been managed and subsided, but now HSBC is expected to be negatively impacted by the debt bubble forming in Asia. Moreover, the double-dip recession in Europe have the probability of increasing the credit losses of the company (Donald, 2009). Largely due to its mortgage-heavy holdings during the downturn, the North American business resulted in a total loss for HSBC of USD 23.27 billion for 2008 and 2009. In 2010, North America returned to profitability, but contributed only 2% to total pre-tax profits, compared to 61% for the Asia-Pacific region (Davis,2011).

HSBC reported attributable net income of USD 13.1 billion for the year 2010, which depicts a huge increase up from USD 5.8 billion in the year 2009. Moreover, the profit margin has also increased from 8.3% to 15.7 on year-on-year basis. However, the results of third quarter shows that on an underlying basis, the bank earned USD 3 billion before tax, down 35% from the year-ago period. Half of this decline is attributed to the movements in hedging, whereas the other half is due to the lower revenues in investment banking and higher loan impairment charges in North America. The paper examines the financial statement fraud in various contexts keeping in view the control and investigation method and techniques in HSBC (Davis,2011).

Types of Fraud

Abnormalities in the financial statements can arise from fraud or error. The distinguishing factor between fraud and error is the intentional cause of the anomaly. The term "error" means an anomaly in the financial statements resulting from an act involuntary, including the omission of a figure or disclosures in the consolidated financial, such as a dysfunction in the collection or processing of information from which financial statements are prepared. Besides, the incorrect accounting estimate usually arises from oversight or misinterpretation facts (Golden, 2008).

Fraud Detection Overview

From late 2001 throughout much of 2002, the U.S. was rocked by a series of corporate scandals that were unprecedented in scope. From the collapse of energy-sector giant Enron Corp. to the bankruptcy of telecommunications behemoth WorldCom Inc., the nation saw a succession of U.S. firm's fall from the great heights of the 1990s economic boom. Driving the scandals was a wave of revelations and admissions by some of the U.S.'s most prominent companies that they had engaged in financial misconduct and fraud to deceive investors and regulators about their economic performance (Golden, 2008).

In Enron's case, the company's management was revealed to have falsified accounts, doctored records and engaged in insider trading, among other misdeeds. Long a favorite among investors and Wall Street firms, Enron had in fact been in serious debt but, through improper accounting methods, had made itself look ...