Academic journal article The Qualitative Report

Patterns of Similarity of Corporate Frauds

Academic journal article The Qualitative Report

Patterns of Similarity of Corporate Frauds

Article excerpt

Today, amidst globalization and competitiveness, managers seeking to provide results on one hand in alignment with corporate objectives and on the other hand in line with personal expectations are motivated to fabricate favorable figures; then resulting earnings management. For Beaver (1998), managers have various personal incentives in the choice of disclosure procedures, and it is thus the job of the independent accountant to monitor and certify the fairness of the financial statements.

According to the positive approach to accounting, firms choose their accounting disclosure policies trying to minimize contractual costs and in defence of managers' individual interests (Watts & Zimmerman, 1986).

Thus, in order to back such situation, nebulous accounting treatments do occur, or otherwise information asymmetry that warrants human interference in the accounting information systems which implies fraud. In 1939, James Sutherland coined the term "white collar crime" to describe criminal acts involving individuals within organizations who act in their own benefit to the organization's detriment (Wells, 1997). Since then, this term has gained force, and now white collar crime can be said to take in any financial fraud.

A perceived disorder of the control environment where that happens would show that something must be fishing, probably as a result of agency conflict or a manifestation of breach of trust. In other words, a lack of alignment between corporate intents and how the business is driven, whereby the managers through the bottom-line tend to produce results, such as: manipulate accounting records as "classics as provisions, credit policies not well defined deliberately so that sales are made to customers whose debts history exceed 180 days; conduct business with decision out of compliance as implement a loan policy to stimulate the growth of small distributors and/or customers. Enron, WorldCom, Adelphia, Global Crossing, Parmalat, Lucent, Tyco and Xerox are some examples of frauds cases that occurred in the beginning of this millennium. It is important to mention that independent auditing firms can also be held liable for the occurrence of financial statement fraud. The most known example is Arthur Andersen, which was one of the Big Five auditing firms, but was held to have colluded in the accounting fraud at Enron, and went bankrupt just as its client did (Murcia & Borba, 2007).

As an analogy, in the aforementioned situation, there is a portrayal of an internal control structure whose pillars are made up of Iroko tree which seemed to have been devoured by termites leaving it hoarse and fragile. We know that the morphological variation of an Iroko tree allows it to take the extension of 50m height with a diameter of up to 250cm. This seemingly green environment covered by this tree with its gloomy shades for some decades appears sick and needs adequate diagnostics.

In this analogy, the procedure may be likened to that which is perpetrated by the manager within the limit of authorization however, in a dubious manner that threatens the going-concern. Cressey (1953) in the triangle of fraud associates it with pressure, opportunity and rationalization; while Dorminey, Fleming, Kranacher, and Riley, Jr. (2011) in their further studies relates it to factors as pressure, rationalization, criminal mind and arrogance. But one further soliloquy pinpoints greed as one of the reasons for the act if no possible certain causality could be analysed in isolation.

In the normal circumstances, the cases of fraud impact the company's results, but in an adverse manner and also open loopholes for additional fraud by precedence, virtually inconsistent with the reality and or acceptable accounting procedures if not treated with due care. However, if we toe the suggestion of how to inhibit such fraudulently marked results, we have the solution to implement compliance programs that is consistent with the company's goals with continuously monitoring of the level of governance from the bottom line. …

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