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Fraud essay

Essay on Fraud

Familiarity with Recent and Historical Fraud Schemes
The article from the New Accountant magazine focuses on a historical aspect of fraud. The author makes the point that students studying accounting and auditing need to make themselves aware of these cases, in order to better understand how and why they happened.   He believes that the more familiar people are with these cases the better chance there is of preventing fraud in the future. In the article fraudulent scheme is defined as: “falsifying financial statements, overstating assets and revenues, understating expenses and liabilities, or not properly disclosing related party transactions” (article). The article has several different cases to show how corporations have committed fraud in the past.
• Manufacturer of household electronic goods
• Filed for bankruptcy in 1988, but recovered in 1996
• Cut 6000 jobs, slashed 90% of its production line
• Closed 13 of their 26 factories
• Overstated income in 1997 by 100%
Under tremendous pressure Sunbeam downsized their company and in the process of doing so they also cut most of their production line leaving them very little product to sell to the public. Sunbeam was convicted for created fictitious revenues, channel stuffing, and bill and hold sales schemes.
• Manufactured anti-shoplifting devices
• Overstated income in 1994 and 1995 by $140 million
Sensormatic was convicted for improper revenue recognition. Sensormatic would record their sales transactions after the quarter end to make their future quarter more profitable. They were also found guilty of shipping merchandise to their own warehouses and recoding that transaction as a sale.
• Overstated income by $3.8 billion
Worldcom is one of the most recognized fraud cases in the United States. They were convicted of capitalization of expenses. These expenses should have lowered their earning but instead the CFO instructed employees to capitalize them as part of…

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