Fair Value Accounting Fraud - Example

Accounting fraud Student’s Name: Instructor’s Name: Course Code: Date of Submission: Introduction Accounting fraud is when the accounts of an organization are inflated due to selfish interests. Most of the accounts which are inflated include the sales and procurement records. Accounting fraud has become a common practice in many organizations and as a result, the resources of the organization are misused. Due to increased cost of living, many employees engage in accounting fraud so that they can sustain their cost of living (Zabihollah 2002). However, accounting is major practice which should be avoided at all costs because it lowers the competitiveness of the organization since the employees are influenced by their selfish interests to fraud the resources of the organization so that they can get extra financial resources. In this regard, this essay will discuss how the problem of accounting fraud can be solved in organizations. Ways of solving accounting fraud problems The first way in which to solve the accounting fraud is to enact strong punishment for individuals who are involved in the accounting fraud. Anybody who engages in accounting fraud is a criminal and should face the laws of the organization and the legal laws. In most cases, harsh sentence for the criminals is the best way to discourage the acts of accounting fraud. Once an individual is found guilty, he or she should face the effects of taking advantage of the resources of the organization to enrich himself (Zabihollah 2002). In addition, criminalizing accounting fraud is also another way in which the employees of the organization can learn to avoid unethical acts which could lead to embezzling the resources of the company. All the employees of the organization should read and understand the policy so that they can be able to know the remedies of breaching the laws of accounting which include accounting fraud. This will enable the employees not to engage in operations which could lead to misuse of the company resources (Zabihollah 2002). In this regard, the employees will understand that there are harsh penalties of engaging in accounting fraud hence they will stop the criminal act and instead uphold the ethical principles while conducting the business and this will help to improve the performance of the organization. On the other hand, education is another key factor to be implemented to solve the accounting fraud problems. Education can be leant in many ways. For instance, the accountant should acquire education concerning the accounting fraud by attending formal education or they can learn the education during on the job training. All the accounting students should understand that accounting fraud is a criminal offence and should be avoided at all means (Association of Certified Fraud Examiners 2012). By providing adequate accounting education to the students, they will come out being competent accountants who will uphold the moral principles while conducting business. This is one way in which the accountants will be able to avoid acts of fraud while performing their official duties. Moreover, while the students are acquiring accounting knowledge, there should be a subject that teaches the students on the acts of fraud like the incidences which could lead to fraud and how they can avoid the accounting fraud acts. This is because from the research which has been conducted, it has been found that the accountants inflate the expense accounts of the organization because they don’t understand the ethical principles which should guide their operations. Some of the accountants are influenced by others to engage in accounting fraud without their knowledge (Association of Certified Fraud Examiners 2012). In this regard, education is a key important factor which helps to solve the problems of accounting fraud in many organizations and therefore there should appropriate education to all employees not only the accountants so that they can learn to avoid what is wrong and uphold what is right. Another way in which to solve the problems of accounting fraud is to compensate the employees competitively. This implies that the employees including the accountants should be compensated effectively in terms of salaries and wages so that they can be able to sustain their cost of living. Sustaining the cost of living will influence the employees to abandon any acts of accounting fraud like inflating the expense accounts of the organization (Brennan & Mary 2007). This is because the employees will satisfy their basic needs hence there will be no need to fraud the accounts of the company. Meeting the objectives of the employees is the most important strategy which should be applied by organizations because once the needs of the employees are satisfied, they will not engage in accounting fraud since they don’t have any reason to do so. In this regard, the accounting fraud will have been minimized in the organization and eventually it will be eliminated when the employees get satisfied with their remuneration. On the other hand, there should be effective procedures which should be followed when purchasing anything in the organization. In most cases the accounting fraud occurs when there are no clear procedures which should be followed when procuring materials. For instance, during tender evaluation, some bidders are favored because they have bribed some of the members of the tender committee (Brennan & Mary 2007). Through this practice, the bidder will increase the prices of the materials so as to bribe some of the tender committee members to win the tender. But when there are effective procedures when conducting tendering, there will be no chance of corruption and this will ensure that the materials are of the correct prices and there is no exaggeration. Auditing is another way in which the problems of accounting fraud can be solved. There should be competent accountants who conduct auditing of the organization to determine how the resources of the organization are utilized. If there is exaggeration of the accounts, the accountants will be able to identify that and report the matter to the relevant authorities (Hitchner 2002). The responsible individuals will be brought to book and will be treated as criminals as stated by the organizational and state laws. In this regard, the employees will be discouraged from engaging in any criminal acts so that they can maintain their reputation in the organization. Nobody will want to be held responsible for wrong doing and therefore the employees will uphold the moral values of the organization like honesty and integrity thus the accounting fraud vice is solved. On the other hand, the recommendations which are made after conducting auditing should be put into practice. The management of the organization should ensure that there is effective follow up to ensure the recommendations are effectively implemented (Hitchner 2002). Some of the recommendations could be effective tendering process and proper documentation so that it will be easy to conducting auditing to identify individuals who misuse the resources of the organization and take appropriate measure to punish the responsible individuals and this will help to solve the fraud problems in the organization. In addition, effective leadership is another way in which the problems of accounting fraud can be solved. Good leaders should be role models to the followers. It is expected that what the leaders of the organization do is what the employees also do (Zack 2009). This implies that if the top management engages in fraud activities, the junior accountants will also practice the same. In this effect, the leaders of the organization should ensure they are not involved in accounting fraud so that they can implement the anti-fraud policies effectively because the employees will be scared if they engage in accounting fraud and the top management does not. In this context, the top management is leading by example and it will be easy for the followers to follow their footsteps. Furthermore, this style of leadership will promote a culture of corporate citizenship within the organization because the organizational culture will be that every employee will act on the best interest of the organization and not individual gain. The corporate citizenship culture will help the employees to uphold the business ethics thus avoid incidences of any form of fraud in the organization (Tillman & Michael 2007). Finally, the management should encourage the accountants and all the employees to avoid incidences of accounting fraud by rewarding the best performing employees. An employee who is trusted most in the organization should be rewarded by either financial or non-financial rewards with the aim of encouraging other accountants and employees to avoid any incidences of accounting fraud. In this regard therefore, accounting fraud should be discouraged and the management of any organization should practice the above policies to eliminate the accounting fraud activities in their respective organizations. Conclusion Accounting fraud has been a major problem in many organizations. This has led to poor management of the resources of the organization hence it should be avoided at all costs because it has led to many problems in organizations. The identified ways in which to solve the accounting fraud problems include educating the accountants effectively, developing harsh punishments for any individual held responsible, conducting regular auditing, developing effective tendering procedures and also ensuring there is effective follow once a transaction has been made. Effective leadership should also be practiced so that leaders can be exemplary to the followers by avoiding incidences which could lead to accounting fraud. In this context, the problems of accounting fraud can be solved in an organization. References Association of Certified Fraud Examiners 2012, Report to the Nations on Occupational Fraud and Abuse: Global Fraud Study, Wiley. Brennan , N & Mary, M 2007, “ Financial Statement Fraud: Some Les-sons from US and European Case Studies .” Australian Accounting Review, Vol. 17, No. 42, pp. 49-102. Hitchner , J. R 2002, Financial Valuation: Applications and Methods, Second Edition . Hoboken, NJ: John Wiley & Sons. Tillman, R & Michael, I 2007, Control Overrides in Financial Statement Fraud, A Report to the Institute for Fraud Prevention. Institute for Fraud Prevention. Zack, G. M 2009, Fair Value Accounting Fraud: New Global Risks and Detection Techniques. Hoboken, NJ: John Wiley & Sons. Zabihollah, R 2002, Financial Statement Fraud: Prevention and Detection, London, Wiley. Read More