Financial Statement Fraud + Website – Strategies for Detection and Investigation

GERARD M. ZACK, CFE, CPA, CIA, is a fraud examiner and forensic accountant with more than thirty years of experience performing audits and investigating fraud. In addition to providing antifraud services to clients, he serves on the faculty of the Association of Certified Fraud Examiners, where he conducts antifraud training on financial statement fraud and other topics. He has also spoken at AICPA and IIA events.

Foreword Preface Acknowledgments Part I Revenue-Based Schemes Chapter 1 Introduction to Revenue-Based Financial Reporting Fraud Schemes Revenue Recognition Principles Changes Proposed by FASB and IASB Overview of Revenue-Based Schemes Chapter 2 Timing Schemes Alteration of Records Shipping Schemes Percentage of Completion Schemes Improper Estimates of Revenue Recognition Period Multiple Element Revenue Recognition Schemes Customer Loyalty Programs Channel Stuffing Bill and Hold Schemes Sales with Right of Return Improper Pushing of Current Revenue to Future Periods Use of Reserves as a ?Rainy Day? Fund Chapter 3 Fictitious and Inflated Revenue Fictitious Revenue Schemes Sales to Related Parties Inflated Revenue Schemes Consignment or Financing Arrangements Chapter 4 Misclassification Schemes Recording Financing Arrangements as Revenue One-Time Credits Reported as Revenue Sales Incentive Schemes Chapter 5 Gross-Up Schemes Agent vs. Principal Barter and Round-Trip Transactions Phony Revenue and Expenses Part II Asset-Based Schemes Chapter 6 Improper Capitalization of Costs Start-Up Costs Research and Development Costs Property and Equipment Software Development and Acquisition Costs Website Costs Intangible Assets Advertising Costs Other Deferrals and Prepaid Expenses Inventory Capitalization Schemes Inventory Flow Assumptions Chapter 7 Asset Valuation Schemes Fictitious Assets Inventory Valuation Schemes Inflating the Basis of Property and Equipment Inflating the Basis of Assets Acquired in Noncash Transactions Assets Acquired from Related Parties Understating Depreciation and Amortization Expense Investment Property Improper Valuation of Investments ? Financial Assets Loans Equity Method Investments Proportionate Consolidation Improper Classification or Amortization of Intangible Assets Impairment Losses ? Nonfinancial Assets Investments in Insurance Contracts Chapter 8 Fair Value Accounting Fair Value Considerations Methods of Measuring Fair Value Internal vs. Externally-Developed Valuations Inputs Used in Measuring Fair Value Part III Expense and Liability Schemes Chapter 9 Shifting Expenses to Future Periods Timing Schemes Involving Liabilities Accounts Payable Compensated Absences Contingent Liabilities Accrued Compensation Improper Use of Liability ?Reserves? Chapter 10 Omissions and Under-Reporting of Liabilities Debt Guarantees Pension Liabilities Conditional Asset Retirement Obligations Part IV Other Financial Reporting Schemes Chapter 11 Consolidations and Business Combinations Fraudulent Reporting Involving Consolidations Business Combinations Chapter 12 Financial Reporting Fraud as a Concealment Tool Financial Statement Fraud to Conceal Asset Misappropriations Financial Statement Fraud to Conceal Illegal Acts Chapter 13 Financial Statement Fraud by Not-for-Profit Organizations Introduction Inflating the Value of Non-Cash Contributions Improperly Reporting Contributions Raised for Others Netting the Results of Fundraising Events Improper Allocation of Costs Associated with Joint Activities Misclassification of Expenses Chapter 14 Disclosure Fraud Introduction Categories of Disclosure Fraud Common Disclosure Risks Part V Detection and Investigation Chapter 15 Detecting Financial Statement Fraud Introduction Motives for Financial Statement Fraud Fraud Risk Indicators Internal Control Indicators Chapter 16 Financial Statement Analysis Use of Analytical Techniques to Detect Fraud Horizontal Analysis Vertical Analysis Budget Variance Analysis Chapter 17 Ratio Analysis Research on Ratio Analysis Use of Operating Ratio Analysis to Detect Financial Statement Fraud Another Useful Measure: Working Capital to Total Assets Chapter 18 Other Detection Procedures Analysis Utilizing Multiple Ratios Ratios Involving Non-financial Data Other Information and Disclosures in Financial Statements Understandability of Financial Statement Disclosures Testing of Journal Entries Chapter 19 Fraud or Honest Mistake? Introduction The ?Smoking Gun? Witnesses Altered Documents Multiple Records Destruction of Evidence Actions That Contradict Recommendations Patterns of Behavior Personal Gain There?s No Other Explanation for It Chapter 20 Assessing (or Minimizing) Auditor Liability Introduction Litigation against Auditors Concealment from the Auditors Auditing Standards Consideration of the Risks of Material Misstatement Improper or Inadequate Use of Analytical Procedures Auditing Accounting Estimates and Fair Values Revenue Recognition Risks Insufficient Consideration of Related Party Transactions Auditing Disclosures in the Financial Statements Over-Reliance on the Management Representation Letter Appendix Financial Statement Fraud Indicators Bibliography About the Author About the Website Index