Financial Statement Fraud

Financial Statement Fraud

Introduction

Earnings manipulation and financial reporting frauds have gained widespread attention in recent years. Considering the recent state of the global economy and the declining shares of corporations, several businesses have been charged with financial statement fraud. No industry can claim immunity to fraudulent activity and a large number of these companies have paid fines and some have even served timed in prison. Corporate can generally be categorized into three distinct categories - corruption, asset misappropriation, and financial statement fraud (Wells, 2011). This paper identifies one famous case of financial statement fraud and reviews the characteristics that occurred in it. It then assesses the risks that resulted in the fraud and how auditors identify cases of financial statement fraud and misappropriation of assets within an organization by scrutinizing financial records (Rezaee & Riley, 2010).

Discussion

In what was inarguably one of the most shocking cases of fraud in corporate history, camera technology giants Olympus was accused of financial statement fraud in the year 2011,. The company stated that an amount exceeding $1 billion in payouts from mergers were utilized to cover up the company's dismal financial performance over a period extending more than half a decade. The payouts were used mainly to conceal losses on investments (Zimbelman, 2011). The company had initially denied having any knowledge of financial statement fraud and assured stakeholders that it was free of any involvement in such an activity. These denials came in the wake of a widening scandal that threatened to put the reputation of one of the top-ranking camera manufacturing companies.

The payouts that were the subject of widespread debate involved $687 million that Olympus had paid in fees to an unclear financial adviser after it had completed a merger process in the year 2008 of Gyrus, a British-based manufacturer of medical equipment. The ...