Accounting fraud is a deliberate and willful misleading of financial records in an effort to deceive the public about a company’s financial well-being. Sometimes, employees are involved in the falsification and cover-up of fiscal impropriety designed to dupe the company’s stakeholders in Iowa and other states.
The crime of deception
These deceptions have come in many forms and have left investors holding the bag of untold millions. To date, this type of corruption is still making news headlines. Tax fraud, hiding money in offshore accounts, inappropriate use of funds and exaggeration of company profits are just a few of the ways corporate accounting fraud routinely occurs. The fact that these activities are illegal has not stemmed the tide.
Accounting fraud does not include all financial misgivings. If, for example, an accountant is making an estimate and plans to replace the estimates with the actual figures, that is considered above board. It is not an intentional misleading of the company’s financial portfolio. So, it is a sound, legal transaction. Even when an officer of a publicly traded company lies about exaggerated profits but did not falsify documents, his actions did not amount to accounting fraud. However, if he is caught verbally misleading the stakeholders, he might have an unwanted visit from the Securities and Exchange Commission (SEC).
To meet the legal standard of accounting, the willful intent of deception must be present in the activity. Thus, one can overstate revenue, spend money without recording those expenses, or document those expenses with false entries, embellish assets and avoid the full disclosure of debts. These actions constitute accounting fraud.
So what is the takeaway?
Perhaps Enron serves as an example of what “cooking the books” can do. Its textbook example put its accounting fraud on the map as being one of the most corrupt in American history. Several of its company executives were sent to prison for not disclosing the extent of its debt to its shareholders. Even when the founder passed away of a heart attack, people mocked him. One commenter stated: “I didn’t know he had a heart!”