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Identification of the Potential Red Flags and Undo of any Accounting Distortions

Identification of the Potential Red Flags

AGL Company prepares its financial reports on a yearly basis and allows the same reports to be subjected to audit and scrutiny so as to establish if there is fraud. The audited reports reflect on the actual picture on financial position of the company in terms of true and fair position of AGL Company. The company also employs techniques of eliminating or reducing the financial risks by proper management of its profits and losses.

The key disclosures on management personnel form crucial reporting towards shaping the company’s profile. In order for AGL Company to establish an opinion on true and fair position of the financial statements, a number of comparisons can be done with the help of the table below. The table reveals the financial income and the associated expenses from 2008 to 2012. The financial income increases from 2008 to 2009 but suddenly decreases in 2010, followed by subsequent decrease and finally an increase in both 2012 and 2013.

These changes in the financial incomes and expenses reveal some sudden change in the management systems, which may have been done fraudulently or in a manner that does not comply to set standards. The management system changes that can be cited as main reasons for red flags include the manipulation of financial records and the sudden change on the management system, thus weakening AGL’s governance structure. Further, management changes result to additional expenses in training new management. Another reason for increased expense is inflation, that is, increased price of some commodities. Therefore, in 2009, 2010, 2012, and 2013, the financial expenses surpass the financial income.

Finance Income

Finance Expense

Net Expense

A Plot of Finance Income, Finance Expense against Time is as shown below:

Identification of the Potential Red Flags and Undo of any Accounting Distortions

The plot above reveals that there is a uniform trend for both financial expenses and financial income. The financial incomes and financial expenses are highest in the year 2009 and lowest in 2011. It should also be noted that in the year 2011, both the financial expenses and financial incomes are at the lowest.

A Plot of Net Expense is as shown below:

Identification of the Potential Red Flags and Undo of any Accounting Distortions 1

Undo any Accounting Distortions

In order to amend abnormality in some of the financial reports, AGL has to comply with the rulings issued out of the audits in order to make appropriate adjustments. The company’s policy is to adopt suitable accounting policies so as to realize the objectives. The audit is carried out according to existing audit standards.


Tovstiga, G 2013, Strategy in practice: A practitioner’s guide to strategic thinking, Physica-

Verl, Heidelberg [u.a.]