Accounting fraud is a significant concern in the contemporary world, given it magnifies unethical practices of duping investors and other credit providers to establishments. Some techniques that accounting fraudsters use to provide false financial statement impressions include forgery, counterfeits, and substituted pages. Relevant authorities such as the American Board of Forensic Document Examiners or the Federal Bureau of Investigation practice forensic document examination to determine the mentioned fraudulent acts by approaches such as viewing accompanied by other specialized techniques.
Accounting fraud is a contemporary concerning theme due to the misleading effects facilitated by the adverse action, which may lead to adverse outcomes such as firm closure. According to Pamungkas et al. (2018), accounting fraud is "the intentional manipulation of financial statements to create a false appearance of corporate financial health involving an employee, accountant, or the organization itself misleading investors and shareholders." Some methods an organization may use to falsify its financial statements include overstating revenue, failing to record expenses, and misstating assets or liabilities. The firm may be operating at a loss given the low generation of revenue and may decide to cover up the situation by claiming to produce more income using its financial statements. The deliberate attempt to falsify the actual revenue status involves inflating profits in financial statements. The underlying goal for such falsification regards increasing the share price by providing a falsified image regarding financial health. A firm may fail to record its expenses leading to understated costs on the income statement. Such an act creates a false impression regarding the firm's received net income when in reality, it may have losses. An organization may equally overstate its current assets and understate the current liabilities leading to a falsified image of the firm's short-term liquidity. The intentional manipulation of financial accounts leading to false-positive impressions on investors and shareholders lead to accounting scandals upon discovery. Unscrupulous organizational leaders use the methods to inappropriately benefit their firm, whereas it hurts investors and shareholders, magnifying the underlying negativity for accounting fraud.
Delegate your assignment to our experts and they will do the rest.
Accounting fraud magnifies the concept of ethical behavior and business targets by placing the fraudsters on one end and investors accompanied by shareholders on the other. Every business targets maximization of profits which involves acquiring maximum revenue while keeping costs at the lowest level. The profits ensure firms have tenure security and require enacting ideal strategies to ensure functioning at optimal levels and maintain good performance. Different agents affiliated with a firm play a significant role in the efficiency of running operations. Examples include the investors and stakeholders or shareholders with the former investing their capital with the expectation of positive returns. On the other hand, the latter pump in funds to a firm through purchases of shares, making them have a level of ownership to the firm's returns based on shares purchased. The mentioned entities only trust their funds with a company when reassured of ideal performance in the current state and a firm shows promise to maintain stability regarding positive output. In some cases, a firm may not be performing well, leading organizational leaders to falsify the actual situation facing their organization. Their act magnifies unethical practices, given it involves doing wrong and misleading investors, shareholders, and other parties directly or indirectly tied to their organization. They use such adverse measures not to lose out on the mentioned agents and, in some cases, to cover up their inappropriate business decisions that led to the bad outcomes. Therefore, accounting fraud magnifies not adhering to ethical behavior facilitated by business targets and misguided personal goals.
Companies have imaginative approaches that facilitate accounting fraud which include forgery, counterfeit, and substituted pages. Firstly, Casement (2020) opines that forgery is "a white-collar crime that generally refers to the false making or material alteration of a legal instrument with the specific intent to defraud anyone." Many nations prohibit the tampering of legal instruments; however, the offense may not fall under the category of forgery unless the action leads to defrauding another individual or an entity. Therefore, knowing and willful misrepresentations satisfy categorization as a forgery. Forgery basically concerns producing an altered output, with the prime concern mainly involving what the forged object is worth or what it proves. Accounting fraud, which is fundamentally similar to forgery, involves deception, especially using objects obtained through forgery, which means forgery is a fraud technique. Therefore, accounting fraud, which involves the manipulation of financial documents, is achievable using forgery.
The second approach to accounting fraud regards counterfeit, which relates to forgery about "fake" documents but differs with counterfeits being copies. According to Soon and Manning (2019), counterfeiting means "imitating something authentic, with the intent to steal, destroy, or replace the original, for use in illegal transactions, or otherwise to deceive individuals into believing that the fake is of equal or greater value than the real thing." Jurisdictions approve specific products and services, with their counterfeits being their fake and unauthorized replicas. The production of counterfeits targets taking advantage of the superior value of the imitated product. Counterfeit and forgery intrinsically relate given the former describe forgeries of currency or documents accompanied by imitation of other products such as fashion materials, shoes, or automobile parts. The counterfeited products may have fake company logos or brands to dupe unsuspecting individuals, which results in infringement concerning patent or trademark. The general difference between forgeries and counterfeits regards the former being an original creation while the latter being a copy which can entail documents or stamps. Producing different copies when falsifying accounting documents regards accounting fraud using the counterfeit approach.
The final approach to accounting fraud regards substituting pages which fundamentally involves replacing original copies. According to Soon and Manning (2019), subtitling and counterfeiting relate to the general product substation referring to "the knowing and willful replacement, without the purchaser's knowledge or consent, of sub-standard, used, or counterfeit products or materials for those specified in the contract or purchase order." Sometimes a contractor may act alone or in unison with corrupt inspectors or project officials when practicing substitution, a common theme for contracts that demand high-grade materials or other valuable materials. An organizational head can manipulate financial statement accounts by substituting pages in accounting fraud, thereby replacing the accurate and unideal renditions that tell the actual story of the company's situation. The leader substitutes the pages with misguiding information or provides a false impression on the firm's relevant agents by depicting an ideal image. Therefore, forgery, counterfeit, and substituted pages contribute to accounting fraud. However, their unideal impacts draw relevant authorities who examine accounting documents to determine any act of fraud.
Accounting fraud may lead to devastating results on investors or shareholders with the illegal act justifying the input of relevant authorities such as the American Board of Forensic Document Examiners (ABFDE) or the Federal Bureau of Investigation (FBI) to address the adversity. According to Fenoff (2017), forensic document examination is the process of assessing documents, especially during disputed court sessions, to determine suspicious acts. The process uses scientific processes and methods to determine authenticity, forgery, or any alteration. The adverse results that arise from accounting fraud with the duped individuals incurring losses on their hard-earned cash or lifelong savings magnify the determination of such fraudulent activity as illegal in most jurisdictions. Some authorities that are responsible for forensic document examination include the ABDFDE and FBI. Fenoff (2017) posits that the former is a non-profit establishment that provides third-party certification to professional forensic document examiners (FDEs) in many countries, including America. The author further suggests that it is the largest certifying body for FDEs in North America, which provides authenticity to an examiner mandated to analyze a document for possible accounting fraud. Fenof (2017) submits that the FBI equally assists in forensic document examination to significantly determine accounting fraud when such activities fall under their jurisdiction as one of the authority's priorities regarding combating major white-collar crime. Therefore, FDEs certified from ABDFDE or the FBI use specific scientific processes and methods to determine accounting fraud with specific approaches to determine forgery, counterfeit, or use of substituted pages.
Firstly, the professional forensic document examiners use means such as viewing using the naked eye or under a microscope for determination. The principle for examination using the eye involves the ideology that the most careful and gifted forgers remain traces of evidence concerning their efforts. An examiner can use the naked eye to inspect documents for any sign of forgery. However, in most circumstances, the assessment requires an intrinsic analysis which necessitates viewing documents using a microscope to reveal any telltale signs of forgery. According to Casement (2020), the most common forgery methods include techniques such as freehand simulation and tracing, which makes them easy to determine using the naked eye or using the microscope. The author suggests that despite document examiners being able to determine forgery, the jury or a judge determines whether there was an intent to defraud based on evidence. Secondly, to determine counterfeits, the professional forensic document examiners use multispectral imaging methods to hasten the testing process or microscopes and imaging scanners to take a close look at the suspected materials (Soon and Manning, 2019). The first approach measures attribute such as color, texture, or size using RGB coloring accompanied by multiple light wavelengths and polarization to assess different yet complementary images. The second method involves viewing documents under a microscope to reveal any telltale sign of counterfeit. The approach may reveal mistakes made, primarily when the fraudulent party utilized the tracing technique to produce the counterfeit. The final approach involves using chemical means to detect faked documents. The examiners may consult typographic and printers' manuals, which determines the production area of a document leading to a counterfeit's determination.
Finally, the professional forensic document examiners use approaches such as viewing and majorly rely on ink testing and paper examination to determine substituted pages. For the first approach, it involves assessing documents for any traces of inconsistency using the naked eye. Some cases involve inconsistent patterns, which may lead to the determination of substituted pages. The second approach involves a highly specialized forensic test whereby the examiner determines the date of production of a specifically used ink. The underlying principle for such examination regards specific ink formulation as identifiable to a specific manufacturer, which asserts the specific first date of commercial availability. For example, when an entry date is 2015, but the used ink was commercially available in 2018, it means there is fraudulent activity given the timelines. Fenoff (2017) submits that ink dating applies chemical analysis approaches such as gas chromatography or mass spectrometry to determine a written entry date. The ink dating approach has vast usages in professional forensic document examination and is usable to determine counterfeits. The approach is one of the most accurate and reliable methods in forensic document examination (Fenoff, 2017). Therefore, professional forensic document examiners from relevant authorities such as ABDFDE or the FBI use the mentioned approaches to determine accounting fraud.
Professional forensic document examiners from ABDFDE or the FBI play a significant role in determining accounting fraud using scientific processes and methods such as viewing and other techniques like ink dating to determine forgery, substituted pages, or counterfeits. Their efforts provide an efficient process to determine fraudulent activities, thereby championing against unethical practices of duping investors and shareholders by false impressions on financial statements.
References
Casement, W. (2020). Is It a Forgery? Ask a Semanticist. The Journal of Aesthetic Education , 54 (1), 51-68.
Fenoff, R. (2017). Addressing Fragmentation in the Forensic Document Examination Community: Applying the NAS Report's Call for Standardization to the Current State of the Field. Forensic Science Policy & Management: An International Journal , 8 (3-4), 90-108.
Pamungkas, I. D. et al. (2018). Corporate governance mechanisms in preventing accounting fraud: A study of fraud pentagon model. Journal of Applied Economic Sciences , 13 (2), 549-560.
Soon, J. M., & Manning, L. (2019). Developing anti-counterfeiting measures: The role of smart packaging. Food Research International , 123 , 135-143.
