One of the worst forms of corporate frauds that exist is the financial statement frauds. Financial statement frauds present manipulated and distorted financial information to interested external users and stakeholders. However, once unveiled, these scams can devastate an enterprise’s reputation and abate its value.

For instance, Tesco’s distortion of financial records has received cognizance among the public and has become widespread news. Tesco had published its financial statement that displayed inaccurate profits of £250 million. To investigate the matter, the Financial Conduct Authority has initiated serious inspections of Tesco’s records.

As the investigation proceeds, Tesco faces a downfall in the value of its share. Furthermore, such negative headings can darken Tesco’s future and harm its long term value. But then, why would companies even consider committing such fraudulent activities?

Oftentimes, despite knowing the possible consequences, business leaders falsify their financial statements to portray themselves in a stronger position than they actually are. This deceit could occur for numerous reasons, such as economic pressure, overwhelming competition, or simply a need to fulfill the creditors’ requirements.

However, despite any reason, financial statement frauds can cause significant harms to the investors, stakeholders, and even the members of the organization.

Citations

“Forensics Accounting Education.” N.p., 1 Oct. 2013. Web. 4 Oct. 2014.

Polack, Richard A. “Detecting Financial Statement Fraud by Richard Pollack – Berkowitz Pollack Brant Advisors and Accountants.” Berkowitz Pollack Brant Advisors and Accountants. N.p., 21 Dec. 2012. Web. 05 Oct. 2014.

Ahmed, Kamal. “Tesco, Sainsbury’s – the Bad News Just Keeps Coming.” BBC News. N.p., 1 Oct. 2014. Web. 05 Oct. 2014.