Case 14 Essay Example

4Preventing monetary loss by investors

Detecting financial statement fraud can proof to be one of the most difficult things to detect more so to investors who have very limited knowledge of accounting principles and practices (Albrecht et al, 2012).

. The association of fraud examiners defines financial statement fraud as misrepresentation or deceptive which an entity may make which result to personal gain. In case 14 of the discussion, Bayou investment as misrepresent their financial statement by reporting a profit of over 43 million dollars while in the actual sense the company made a loss of over 49 million dollars.

Generally the red flags of financial statements normally provide overview warnings and signs any investor should consider before investing into the companies (Albrecht et al, 2012).

. Though these red flags do not present an obvious scenario of occurrence of fraudulent activities within the company, but further in-depth research needs to be done by the investor to ascertain the accuracy and the truthiness of the financial statements and not award loans to business which operates under high risk.

The five basic financial statement frauds which exist and which have occurred in the Bayou Company include;

  1. Fictitious sales

  2. Improper expense recognition

  3. Incorrect valuation of assets

  4. Hidden liabilities

  5. Unsuitable disclosure of financial activities

In order for investors to prevent their financial loss, they need to keep effective an open eye on these fraudulent disclosures and common red flags indicated in the financial statements, (Albrecht et al, 2012).

The investors should also greatly liars with the security exchange commission in getting the true position of firms which they do invest in since the law charged the SEC with full responsibility of safeguarding the investors interest from investing in fraudulent companies hence this body will play key role in helping the investors of Bayou to take all the necessary risk analysis which is involves in investing in any other companies hence preventing their monetary los (Albrecht et al, 2012).

Reference

Albrecht, W.S., Albrecht C.C., Albrecht, C.O., Zimbelman, M.F. (2012) ) Fraud Examination,

4th Edition