Tool for Checking Corporate Revenue Accounts Frauds

[Adam Fleming]

Corporate revenue account fraud and account manipulation are serious issues for businesses in many parts of the world today. Although legislations such as Sarbanes Oxley have been passed with the intention of making corporates more accountable; corporate accounting is still vulnerable to manipulation and fraud. A company’s financial statement is a primary area in which a fraud can happen.

A financial statement is the elementary piece of documentation which reflects a company’s financial stature. It mirrors the company’s financial health, and is the document that is taken up as reference for discussion and clarification during shareholders’ and board members’ meetings. Since they contain information about cash flows, balance sheets and income statements; financial statements are the reference point for judging the financial situation of a company.

Why does fraud take place in financial statements?

Financial statement fraud can happen for a number of reasons:

• It can be carried out to deflate figures, so that shareholders may be paid lesser dividends than they deserve
• Financial statement fraud can also be to report lesser incomes, so that the company pays lesser tax
• They can also be inflated to raise more funding and capital

Financial ratios as a means of detecting financial statement fraud

Among the many mechanisms used for detecting financial statement frauds; financial ratios are an important one. They can be used to analyze and interpret the numbers in financial statements to arrive at an understanding of important aspects such as the following among others:

• Is the company holding excess inventory unnecessarily?
• Is it running a heavier debt than is necessary or manageable?
• Are the payments from customers coming rightly, fully and on time?
• Is the company spending a lot more on production than is necessary, i.e. is its operating expense on the higher side?
• How is the company utilizing its resources and assets to generate revenues?

Ways of using financial ratios to detect frauds

A financial analyst, or anyone connected with the company’s financial statements, such as a chartered accountant, auditor, stakeholders, and board members and so on, can use financial ratios to quickly analyze the situation. Whenever there is a change in the allocation or revenues from each source, the extent to which the changes happened needs to be explained. Unless there is a reasonable or convincing reason for which the values change from one year to another; it becomes a potential red flag that is worth investigating into.

And the percentage or extent to which the ratio changes in relation to the industry average can also be used as a reference. If the industry average for a certain item is say, 15% of the expense, and if there is a perceptible change in it from one year to another in a company’s financial statement, then that is something that needs to be looked into.

These are just a couple of examples of how ratios can potentially show up mismatches and anomalies in the financial statement.

Full learning on how to use ratios for detecting fraud

Is there a way of detecting these account frauds before they happen? Which are the warning signs and red flags that need to be taken note of when checking financial statements, so that these frauds are detected early, and the damage limited?

A webinar from Compliance4All, a leading provider of professional trainings for all the areas of regulatory compliance, will show which these are, and how they can be used. This webinar will offer an in-depth, professional way of using ratios for detecting financial fraud in companies.

At this webinar, Mike Morley, who is a Certified Public Accountant, business author and an entertaining and informative speaker and a recognized authority in the field of finance, will be the speaker. Mike offers various training programs, such as IFRS, SOX, and Financial Statement Analysis that focus on providing continuing education opportunities for finance and accounting professionals. It is this wide-ranging experience that Mike brings into this session on using ratios for fraud detection.

Please register for this webinar by visiting Detection in Corporate Revenue Accounts Michael will offer an overview of some of the best practices in ratio analysis for fraud detection in corporate revenue accounts used today. This will be highly useful to participants from the Finance sector, such as Accountants, CFO’s, Auditors –External and Internal, Business Managers, Forensic Accounting Researchers, and Fraud Investigators.

Mike will cover the following areas at this webinar:

• External Pressures that Might Lead to Committing Financial Reporting Fraud
• Internal Red Flags that Might Affect the Revenue Accounts
• Ratios that Help Spot Unusual Financial Results
• Ratios that Indicate which Transactions should be Analyzed in Detail
• Ratios for Finding Account Balances that Might be Inflated

Ratios for Verifying the Relationship Between revenue and other Accounts.