What Is Fraudulent Financial Reporting?

How do you identify fraudulent financial reporting in San Francisco, CA? If you’re just starting out as a new business owner, or have never had to deal with this situation before, you might not have any examples of fraudulent financial reporting.
Basically, if you’re altering or misrepresenting your firm’s financial statements in order to give a better or different impression than reality, you may be guilty of fraudulent financial reporting. When an investor is interested in your business, they need to know the nuts and bolts of what you’re doing. If you’re dishonest about the state of the business or how it may play out in the future, you may be committing fraud.

What is fraudulent financial reporting?

Imagine if your business was trying to create a profile for itself. Obviously, you would highlight the best aspects while downplaying the flaws. However, if you deliberately deceive investors to make them think they’re getting a better deal than they are, you are committing fraudulent financial reporting. For example, if you project a better earnings growth, or manipulate the expenses or liabilities, or otherwise manipulate your firm’s earnings, this qualifies as fraudulent financial reporting.
Generally, the firm’s senior accountants or other financial reporters manipulate the firm’s income and other financial figures to make it look like the place is much more profitable than it really is. The accountants might manipulate the figures to make it look like you’re receiving a lot more than the company is actually making.
You might see fraudulent financial reporting when people are trying to affect the price of stock, or when they’re trying to comply with the direct financial reports from your company. They may also see pressures from the market, have personal incentives or a direct lack of ethics—whatever the case, this will harm your company.
External auditing and a board of directors may help reduce this risk, but to be clear, the best way to avoid issues with the IRS is to start at home.

Examples of fraudulent financial reporting

Not sure if you’ve heard of fraudulent financial reporting in the past? Here are a couple examples you’ll likely recognize from the news:

  • Enron: Enron executives inflated its holdings and accounting practices to make it seem like the company was far more profitable than it actually was. The company actively withheld debt and assets from the investors to ensure that it would have more financial power than it really did.
  • WorldCom: In 2001, WorldCom falsely reported its statements to manipulate its earnings and distribute more money to its stakeholders. The company inflated its profits by over $4 billion.

Are you concerned that your firm is suffering from fraudulent financial reporting? If so, you need the help of experienced financial professionals. Medina & Company Consulting, Inc. can help sort out the issues, whether it’s a simple mistake or a common error—or whether you’re dealing with fraudulent financial reporting in San Francisco, CA. Reach out to us to arrange a consultation. We look forward to assisting you soon.

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