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Forensic Accounting Essay

1320 words - 6 pages

Forensic Accounting
Name
Institutional Affiliation

Fraud committed on behalf of an organization vs. fraud committed against an organization
Fraud commuted on behalf of the organization entails a section of the organization’s employees especially the senior management engaging in activities that are meant to benefit the company but in reality cause serious issue to the larger society the group is supposed to serve. An example of these types of frauds is false bidding scheme that refers to situations that a firm pretends to have followed the bidding system although practically the bidding did not take place. One party is allocated the bid before they are received for evaluation although ...view middle of the document...

Therefore, the fraud is in way neglect by the organization from its core responsibilities for the purpose of the executives or the employees to make profits. It is evident in the case of the "Libor" scandal involving Barclays Bank in London in which the managers did not consider that wrong or untrue representation of the financial stability of the Bank would be of hindrance to the economic gains of the very people it is supposed to provide financial assistance and help (Matthews, 2012). On the other hand, the fraud committed against the organization entails an employee, or a group engages in financial fraud for his or her personal gains at the expense of the company. That means that as the individual benefits, the company makes loses out his actions. An example is the case of a waiter engaging in financial fraud at his place work in that he misuse his power of being allowed to collect money from all the customers he serves. Instead of remitting the whole amount received to the hotel cashier, the waiter pockets some of it from the clients and only remits cash for a few of them. In this type of crime, the pressure of committing the offense involves the motivating factors for the offence as a result of the fraudster with personal financial problems committing an illegal act of stealing cash from his employer. Such pressure visas a result of little pay at work that cannot enable him cater for his errands such as transport and other bills. The fraudsters would steal the cash to amass enough money to provide for all their expenses. There is also the excuse that the fraudsters if employed are underpaid and as such, they need to steal the money so that they can meet all their expenses that far out way their income.
Earnings Management
Earnings management entails the use of accounting techniques to produce financial reports for the purpose of meeting the financial regulations by SEC. The result of this practice is the likelihood of painting an overly positive picture of a company's business activities and financial position. The first advantage of earnings management is the fact that it is the internal information management tool through which financial information about a company is communicated to other stakeholders. The meaning for this is that a reasonable choice of accounting policies and disclosure of accruals can be business-related internal information passed on that in turn affect the cost of capital. Another advantage is the avoidance of excessive fluctuations in the profits of enterprises where profit-orientation as a real explanation. Thirdly, earnings management is necessary for its allowance of the operator to use the surplus in the management of situation that would not yield flexible responses or to avoid breach of contract, thereby reducing the corporate cost of capital. That is because the practice is neutral.
Despite the various strengths of earnings management, there are challenges too. Firstly, it is non-effective short-term...

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