Accounting fraud is the act of knowingly misstating earnings, revenues, expenses, projected earnings, profit, and the misusing or misdirecting of those funds. This act is more commonly recognized in the business world; however it occurs with individuals and privately owned companies as well. Individuals who commit accounting fraud are known as white collar criminals.
Most people think of accountants as straight laced and by the book types of people which is why it’s so hard for some people to put the words accounting fraud together. But in the world of multimillion dollar businesses and companies, accounting fraud has run rampant for years. There have been several accounting fraud investigations done by the Securities and Exchange Commission (SEC) over the past decade. Company’s such as Enron, Tyco, WorldCom, and several others have made the accounting rules and audit process much more difficult on other company’s due to the dishonesty that was committed by these company’s and their executives.
In several instances these investigations and claims of accounting fraud have destroyed the company in question not only by the claims causing shareholders to loose faith in the company but also if the claims prove to be true in cases such as Enron which resulted in the downfall of the company.
Accounting fraud in recent years has also been committed by accounting and auditing firms such as Arthur Anderson and PricewaterhouseCoopers. These firms that were hired by companies such as Enron to administer corporate tax returns or audits participated in accounting fraud by knowing misstating financial information, shredding financial documents, as well as misleading the public on the value of the company in question.
Accounting fraud isn’t just committed by businesses; individuals can also be guilty of committing accounting fraud in their personal or privately owned business tax returns. Most people are aware that the IRS is not capable of auditing every tax return filed therefore those who are trying to commit accounting fraud may have a decent chance of getting by with it.