Preparation of Financial Statements and Prevention of Fraud

Essay by massi1214University, Bachelor'sA-, August 2014

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The recent years have seen an increased demand for the release of transparent and integral financial information by the corporate sector. Following decades of minimally regulated growth and non-existent government oversight large organizations now encompass a significant number of stakeholders. The exponentially increased cash flows and profit margins warrant sophisticated accounting and book-keeping units within the firms. Auditors have been entrusted with the role to verify and authenticate the information generated by theses accounting units and to point out any discrepancies. In this essay we will discuss how following a series of recent financial scandals, the true and fair view of financial information disclosed to the public has been questioned. We will assess how the roles of the Board of Directors and Auditors can be pivotal in the prevention of such deviation. Moreover, we also examine the efficacy of government lead regulation and legislation in order to restrict any margin for financial manipulation by businesses.

Today's modernized and digitally equipped economies have still not been able to keep financial manipulation at bay. Numerous scandals and frauds involving the misrepresentation of financial statistics have surfaced in the recent past; this has not only raised questions on the transparency of these published reports, but also invoked concerns amongst the stakeholders about the roles of the board of directors and the auditors of the affected organizations. "Enron Corporation" is a prime example of such large-scale deceit. Enron was found to have issued misleading financial accounts. The corporation was exhibiting a healthy cash flow and sustainable growth margins on paper; however, on ground the company faced a plummeting stock price, a large unsettled debt account and all the necessary forebodings of a bankruptcy. The mal-practices of the Corporation not only ensured its bankruptcy but also cost...