This chapter analyses and interprets the informations collected for the intent of this survey. This information analysis chapter is divided into two parts. Separate A explains and interprets the replies and information given by the directors and hearers. This analysis will assist us to happen the reply to the rubric of this undertaking that is ‘Examining the function of hearer and direction in fiscal fraud ‘ . Part B will incorporate those informations and analysis that would back up the treatment in portion A and will be in signifier of figures and charts.
The reply to this inquiry will be answered utilizing certain graphs and charts that will back up the consequence and decision derived from the information and information collected for the intent of this survey.
Separate A ;
Its subdivision describes and analysis the grounds behind the happening of large accounting fraud. The methods used in this survey to roll up needed informations and information are the interview. A structured interview through electronic mail with a director of revenue enhancement in Bayer Crop Science Ltd ( India ) and an hearer of Pricewaterhouse Cooper an auditing house was conducted and following are the consequences derived from their account.
Question 1: Harmonizing to you, how does accounting fraud occur?
When the Taxation Manager of Bayer Crop Science Ltd, was asked about his position on accounting fraud, he answered that accounting fraud occurs when the individual responsible for managing and keeping history of the company deliberately or accidentally forgets to enter a dealing, falsifies the Numberss or record the entries in other bomber caputs where it should non look as per the accounting regulations. This is called as ‘Window Dressing ‘ . Window dressing is the procedure in which the fiscal statements of the company are falsified and modified in order to show better place of the company in forepart of the stakeholders and the market. Harmonizing to him most of them uses this common techniques in order to show better image of the fiscal statement: understating of assets, exaggerating of liabilities and over engagement of disbursals etc.
While replying the same inquiry, hearer of PWC added there are many ways in which an accounting fraud occurs. There are two types of people who are likely to do fraud ; Management and employees. Employees by and large get involved in rip offing the company when there is a immense difference in the wage rates of those at the top with those at the underside of the organisations. So, many employees rationalise these fraud by stating that their organisation is non playing clean as their foremans are overpaid. Other people who are largely responsible for fraud are top direction who have assorted grounds for perpetrating fraud. They sometimes force their comptrollers to do false entries in the books of histories and organize a statement which will demo a brighter image of the company.
Question 2: Who all are responsible for such frauds?
For this the revenue enhancement director and the hearer shared the same position and they replied that chiefly such large accounting frauds are committed by internal employees of the company. Largely, these people are directors, top degree executives and they are supported by the hearers of the company. Top degree executives include Chief Executive Officers ( CEO ) , Chief Financial Officer ( CFO ) , and Directors of the company. Top Executives are in place to order the comptroller to pull strings the accounting informations, and so eventually hearers had to corroborate the audit study as in order to back up their most valuable clients. Therefore harmonizing to them fiscal frauds in large companies are combine attempts of many people which are by and large at a reputed place in the company.
Answer to this inquiry given by the hearer of PWC was, to place fraud some particular and excess cheque should be conducted on those people who held large place in the company. Job rotary motion and one-year leave should be given to the employees so that, during that period fraud made by them are unleashed. Taxation director explained the same process but added some more methods to it like system cheques and surprise audit. Surprise audit should be given more of import as the employee ‘s handling histories are incognizant of the cheque and this may assist to observe fraud.
Question 4: Are at that place any restriction faced by the hearer while carry oning audit? If yes, what are they?
Both Auditor of PWC and revenue enhancement director agreed that there are certain restrictions faced by the hearer while carry oning audit of the house. The chief factors that limit the audit process is voluminous dealing that is they have legion dealing to record and therefore sometimes it become impossible for the hearer to look into whether each and every dealing is recorded or non. Second of import factor is clip ; they have many conformities processs to be met due to which clip available for hearer is much less. Taxation director besides added a point that when an hearer smells fraud he instantly starts to work on it to roll up grounds but some clip it ‘s the direction behind the fraud so, they do n’t collaborate with the hearers.
Question 5: which are the countries investigated by the hearers before subscribing an audit study?
This inquiry was answered otherwise by both the individuals. The hearer is of the position that the compulsory demand of the country of probe in audit procedure is different in different states. Auditor should look into countries such as about traveling concern in close hereafter, opportunities of company traveling insolvent, fiscal stableness etc.
Whereas, in the position of revenue enhancement director, before subscribing an audit study it is the responsibility of the hearer to look into the disbursals, assets, liabilities, proviso etc of the company. He can look into disbursals by verifying the sum with the measures and grosss. He may physically travel for look intoing assets of the company to look into that there is no bogus entry about any sale or purchase of plus.
Question 6: Under what conditions hearers can deny to subscribe the audit study?
In the position of revenue enhancement director, an hearer can deny subscribing an audit study when he/she finds that the sums shown in the fiscal statement does non reflect the true and just position of the minutess. Whereas hearer emphasizes on this issue by adding some more statements to it. Harmonizing to her two more factors exist based on which the hearer can deny to subscribe the audit study they are ; if there is dissension between direction and hearers sing certain points, so an hearer should non subscribe the audit study before uncluttering his/her uncertainty. And secondly, if the hearer asked for certain informations or cogent evidence sing ant dealing and if the direction is non able to supply it so the hearer can deny subscribing the audit study.
Question 7: Talk about recent cozenage, what harmonizing to you were the jobs with Satyam?
Majority of people answered that the jobs with satyam would hold been incorrect direction in the company, deficiency of proper internal control, deficiency of communicating between the direction and the managers, more trust on direction etc. the hearer of PWC besides mentioned a point stating that the independent managers of the company should hold given more duties to take portion in the determination as that would assist in cut downing fraud.
Question 8: what do you believe really happened in Satyam and how it could hold been prevented?
This was really satisfactorily answered by all the people but the hearer of PWC explained profoundly, some of the things that went incorrectly in Satyam along with the stairss that would hold prevented the happening of the fraud.
They recorded the gross revenues of the subsequent twelvemonth in the current twelvemonth by pre-dating the bill. Now they have to go on with this policy in order to keep the net income tendency. What hearer should hold done is to look into the day of the months of bills, cargo advices, debitor ‘s verification, physically verify the stock, look into the gate passes etc.
They recorded bogus gross revenues dealing in the current period in order to blow up the net income of the company and in the subsequent twelvemonth they showed it as gross revenues returned. For this the hearer should hold checked the bill, subsequent old ages gross revenues return, debitor ‘s verification, stock tally etc.
They besides recorded bogus dealing to demo influx of money. The hearers could hold checked the existent paperss back uping other income and should hold compared it with the expertness in the company who provides such services.
The company even tried to blow up their net incomes by non booking the purchases and overhead this could be detected by the hearer by comparing the purchase with physical stocks, quantitative run of stocks, obtaining creditor ‘s operating expenses, bank rapprochement statement etc.
Question 9: What are the lessons learnt by you from such increasing accounting fraud?
Harmonizing to the hearer, she believed that this addition in the figure fraud had made the hearer and the auditing house more cautious about the accounting process followed by them. She placed importance on some basic things like before taking any audit assignment process, it is of import for the hearer to decently understand the clients concern, the accounting methods used by so, their internal auditing procedure etc. hearer should besides hold cognition of the history and background of the company like whether or non the company had and are of import instance of fraud in the yesteryear. All these things can assist forestalling fraud in future. Whereas the revenue enhancement director had a different statement harmonizing to him the lesson learnt by all the auditing houses and hearer is, they should be self trust instead than believing more on the direction of the company. If the individual from top direction is besides the 1 who looks after the accounting of the dealing, so all the inside informations should be exhaustively checked by them along with the grounds for the being of that dealing.
Question 10: Are at that place any alterations required in audit process to forestall such cozenages in future? If yes, what are they?
The revenue enhancement director suggested some alterations which should be brought approximately in the audit processs are ; in-depth cognition of the clients concern before taking any audit assignment. He believes that if the hearers are allow doing a survey about the concern of the client before really accepting the duty of executing audit will assist forestalling cozenages. He besides states that hearers should be given proper developing anterior to assignment. He should be clear about the countries where he need to de in-depth research.
Even the hearer has the same position that alterations are required to be made while executing audit process so that the possibility of perpetrating fraud lessenings in future. Harmonizing to her strong internal control system should be implemented in the company. External hearers should do periodical and surprise visit n the company in order to look into whether or non all accounting process is conducted as per Accounting and Auditing Standards ( AAS ) . One measure is to be taken from the side of authorities that is to be rigorous with the infliction of punishment if the company does non follow proper process and guidelines given in AAS.
Part B
10 Highest accounting dirts across the universe: in pecuniary footings
The above chart shows 10 major accounting frauds in the history of the universe which had drastic consequence on the economic system of their several states. The chart shows the name of the company and the sum of fraud they committed. Peoples are chiefly influenced by “ Big Brand Name ” they invest in the company which is the top gainers in the stock market. But our survey reveals that largely companies with are more successful have greater opportunities of perpetrating fraud. The bigger the company, the greater is the misdirection of the histories taking to fiscal cozenage. Harmonizing to my research there are three chief and common grounds for such misdirection of histories in large companies are as follows:
When the direction did non desire to unwrap the existent image of the company in forepart of investors and the universe, they try to pull strings the histories of the company. This may be exaggerating or minimizing the consequences.
The major job with the top direction is their personal position and self-importance. Because of this job they find it hard to accept the failure of scheme made by them. So, when the concern of the company faces any losingss due to them they try to pull strings the histories in order to conceal their failure.
Sometime in order to run into or transcend the gross growing outlook by stock market analysts the direction makes alterations in their fiscal histories in such a manner that these analyst finds it more impressive.
The beginning of above informations hypertext transfer protocols: //bizcovering.com/history/10-major-accounting-scandals/
Explaining top 5 fiscal frauds in India:
The tabular array shown below gives the item of top 5 accounting frauds that occurred in India along with the people who were involved in the fraud and the entire sum included in the cozenage.
Name of the company
Year in which fraud occurred
Person responsible for the fraud
Sum
CRB Capital Market Limited.
1996
Chairman of the company.
12000 crore.
ITC, Chitalia
1996
Director of the company.
364 crore.
Home Trade
2002
Chairman and Director of the company.
6000 crore.
DSQ Software
2003
Chief Executive officer of the company
595 crore.
Nagarjuna finance
2003
Executives and boosters.
98.37 crore.
Satyam Computers Services.
2007
Chairman of the company.
14000 crore.
The above tabular array shows the top six fiscal frauds in the history of India. It can be concluded from the above tabular array that bulk of people involved it the fiscal frauds are from the top direction. They are by and large president, manager and CEO of the company. This can besides be shown in the undermentioned saloon chart:
Sum in Crore
It can be seen that Satyam tops the chart with the fraud of Rs14000 crore. This is the most recent cozenage in India in the twelvemonth 2007. The individual behind this cozenage was B. Ramalinga Raju the Chairman every bit good as the laminitis of the company. He was supported by the hearers of the company in order to cook the books of histories. Price Waterhouse Cooper was the auditing house of Satyam, two hearers S. Gopalakrishnan and his deputy Srinivas Taluri, A were arrested in this fraud instance as they were held apt for cooking the books of histories and for non uncovering the truth of the fraud in the company.
The beginning of the above information is http: //economictimes.indiatimes.com/quickiearticleshow/3959731.cms
Satyam fraud:
Let us now have the dissolution of entire sum of the fraud in the Satyam. The chart shows the existent figure every bit good as the hyperbolic figures which were shown in the balance sheet of the house.
Sum in Crore.
The above graph shows all the countries in which the fraud was committed by the president of Satyam. He inflated the figures in the balance sheet in order to conceal its existent place. We can see from the graph that the sum of hard currency available with the company forms the major portion of the hyperbolic balances. The existent hard currency available with the company was Rs 139 crore where as it was shown as Rs 5160 crore in the balance sheet of the company.
The beginning of the above information is http: //www.scribd.com/doc/46641804/Sat-Yam
Recently a study was conducted to happen the extent of hearers ‘ duty to observe fraud. Individual selected for replying this study were indiscriminately selected from the undermentioned beginnings: Small Firm CPA ‘s, Large Firms audit spouses, corporate fiscal directors, Bankers & A ; Financial Analysts.
Table A: Pre SAS.
Very High
High
Impersonal
Low
Very Low
Entire
Small-firm CPA ‘s
66
31
3
0
0
100
Large-firm audit spouses
61
21
8
3
7
100
Corporate fiscal directors
74
20
3
1
2
100
Bankers
82
12
2
0
4
100
Fiscal
analysts
86
4
2
2
6
100
Over all entire
369
88
18
6
19
500
Over all per centum
73.8
17.5
3.5
1.2
3.8
100
This was the consequence before execution of SAS 16 and SAS 17. It states that all the groups majorly rated that hearer has a really high duty to observe fraud. Harmonizing to the informations collected from these 5 groups, consequence can be analyzed as:
Small-firm CPA ‘s: – 66 % of them rated that hearers have ‘very high ‘ duty, 31 % of them rated it to be ‘high ‘ and 3 % were ‘neutral ‘ .
Large-firm audit spouses: – 61 % of them rated it to be ‘very high ‘ , 21 % said that it is ‘high ‘ , 8 % rated it ‘neutral ‘ , 3 % believed that their duty is ‘low ‘ , and in conclusion 7 % rated it as ‘very low ‘ .
Corporate fiscal directors: – Around 74 % of them believed it to be ‘high ‘ , 20 % of them are of position that the duty of hearer to observe fraud is ‘high ‘ . 3 % were ‘neutral ‘ about it, about 1 % says it to be ‘low ‘ and 2 % said it to be ‘very low ‘ .
Bankers: – 82 % from the bankers said that its ‘very high ‘ , 12 % voted it as ‘high ‘ , 2 % of them were impersonal and 4 % of them said that hearers duty for sensing of fraud is ‘very low ‘ .
Fiscal analysts: Amongst the fiscal highest figure of people voted the duty of hearer to observe the fraud to be ‘very high ‘ . 4 % said it to be ‘high ‘ , where as 2 % of them rated it to be ‘neutral ‘ and ‘low ‘ , and eventually staying 6 % voted it ‘very low ‘ .
Interpretation of overall consequence: when the corporate consequence of the overall study is taken it concluded that in all the five subdivision bulk of people which is 74 % said that hearers have a really high duty towards observing stuff misstatement. Whereas 18 % found it to ‘high ‘ , 4 % voted for ‘very low ‘ , 3 % were of sentiment that its ‘neutral ‘ and rest 1 % said its low. So, from the above study we can come to a concluding decision that everybody finds auditor as extremely responsible for the sensing of misstatements which leads to fiscal fraud.
The same consequences of the above study can be described in the pie chart shown below:
Same study was conducted after the execution of SAS 16 & A ; 17 in the twelvemonth 1977, the informations collected showed a different consequence as the debut of new accounting criterion by AICPA gave hearers more duties towards observing fraud. Following was the informations collected from the study.
Table B: station Special air service
Very High
High
Impersonal
Low
Very Low
Entire
Small-firm CPA ‘s
49
31
14
6
0
100
Large-firm audit spouses
36
33
12
5
14
100
Corporate fiscal directors
68
22
6
3
1
100
Bankers
77
17
5
0
1
100
Fiscal
analysts
81
13
2
0
4
100
Over all entire
311
116
39
14
20
500
Over all Percentage
62.2
23.2
7.8
2.8
4
100
The above consequence saying the duty of an hearer in observing fraud can be analyzed as under:
Small-firms CPA ‘s: 49 % of people from this subdivision believed it to be ‘very high ‘ , 31 % said that its ‘high ‘ , 14 % were impersonal, and 6 % said its ‘low ‘ .
Large-firms audit spouses: this subdivision has a balanced position about the duty of the hearer as 36 % says its ‘very high ‘ , 33 % said it to be ‘high ‘ , 12 % viewed it to be ‘neutral ‘ , 3 % thought it to be ‘low ‘ and merely 1 % of them said that its ‘very depression ‘ .
Corporate fiscal directors: people from this group voted 68 % to ‘very high ‘ 22 % of them said its ‘high ‘ , 6 % were ‘neutral ‘ , people who voted for ‘low ‘ and ‘very low ‘ were 3 % and 1 % severally.
Bankers: amongst them highest evaluation that is 77 % was for ‘vey high ‘ , following comes ‘high ‘ with 17 % followed by ‘neutral ‘ which is 5 % and remainder of them said it to be ‘very low ‘ .
Fiscal Analysts: a really little difference in the position of this group of people can be seen as compared to pre SAS study. 81 % voted it to be ‘very high ‘ followed by 13 % who viewed it to be ‘high ‘ and the remainder 4 % and 2 % said it to be ‘neutral ‘ and ‘very low ‘ at the same time.
Interpretation of overall consequence: Even after execution of SAS no 16 and SAS no 17 it can be concluded from the overall consequence that highest figure of people were of the sentiment that hearers have ‘very high ‘ duty of observing fraud, about 62 % of the overall people have this sentiment, whereas 23 % believed it to be ‘high ‘ . 8 % people were impersonal about it. 4 % voted it to be really low 3 % said it to be low.
From both the study that is Pre and Post SAS, the consequences derived can be concluded as, high figure of people believed that hearers are extremely responsible to observe the material misstatement of the fiscal histories which leads to fiscal fraud in the company. If the fraud occurs, the hearers are ever blamed for mishandling the histories of the company. Very few of them believe that hearers duty for observing fraud is low as hearers are chiefly appointed to look into whether or non all the minutess are recorded right as per accounting regulations or non and whether or non the fiscal statement shows true and just position of the company they are non responsible to happen frauds in the company.
Harmonizing to an article issued by Deloitte, an auditing house majorly top direction is behind the large accounting frauds which have occurred boulder clay day of the month. They made a research on it based on the functions of the single topics of SEC alleged fiscal statement fraud enforcement released in 2008. The pie chart shown below provides us with the consequence of their survey.
This survey revealed that 44 % from the entire figure of people responsible for the fiscal fraud histories for Chief Financial Officer ( CFO ) , Chief Accounting Officer ( CAO ) , and accountant. Next is followed by Chief Executive Officer ( CEO ) with 24 % . Other members of the direction which are alleged by the SEC to be by and large involved in the accounting fraud are the people from gross revenues, runing and be aftering section and jointly they represent 24 % of persons identified in the SEC ‘s enforcement releases in the twelvemonth 2008. The managers and the general Counsel each signifiers 4 % of their engagement in accounting fraud. Thus it can be learnt that it is the people who are inside the company commits fraud. And the most common amongst those are CEO ‘s, CFO ‘s and accounting officers of the company. So, the hearers and the direction play a really of import function in the fiscal fraud. They are the people who are responsible for it as they are in a place to pull strings the histories of the company. So, on the footing of the place they hold in the company they manipulate the histories of the company as per their ain demands so that they can show better image of their company in forepart of the stakeholders.
( Beginning of the informations explained below is, hypertext transfer protocol: //www.deloitte.com/assets/Dcom-UnitedStates/Local % 20Assets/Documents/FAS_ForensicCenter_us_fas-us_dfc/us_dfc_ten_things_about_financial_statement_fraud_241109.pdf )
