Accounting for bonds and other long term debts

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Accounting for bonds and other long term debts

Fraud is the intentional misstatement by a person of the financial statements subject to audit. Fraud usually occurs mostly when the financial report is misstated, the assets are misappropriated or failure to record transactions. In the misstatement of the financial report, the amounts of the financial report may be omitted. The amounts in the financial report are also usually presented in such a way that they mislead the users of the financial statements. This usually makes the financial statement not to be in accordance with the generally accepted accounting standards. These financial statements are usually manipulated, falsified or the supporting documents tampered with (Cendrowski & Louis, 55).

Another area that is usually prone to fraud is the assets of the company. The assets are usually misappropriated. The employees may steal the company assets causing the financial statements presentation to be impossible. Asset misappropriation can be done in ways such as an employee making the company pay for goods not purchased, misappropriate receipts by a company or even stealing the assets for personal use. When these assets are misappropriated, false records may accompany them. These records cannot be traced back incase the auditor conducts a walk through test on the transaction. The misappropriation of these transactions may cause the financial statement not to show a true and fair view of the company’s state of affairs.

Thirdly, an employee in charge of transactions may fail to record transactions. This causes the employee to pocket the money not recorded. Such transactions include the bad debts already recovered. Recovered debts should be recorded and the employees should practice honesty. In addition, the scrap properties of the company that have been sold should be recorded and the cash maintained in the organization. The employees should not pocket the cash (O’Gara, 82).

In order for fraud to be detected, the auditor can conduct surprise checks on unexpected days. He can monitor the inventories on unexpected dates or even count the company cash and monitor the company transactions unexpectedly. The auditor can also demand the counting of stock at the end of every accounting period to minimize the cases of misappropriation of the company assets. Inquiries about the transactions made by the company can be made. These inquiries should be in respect to the purchases and receipts made by the company. This ensures certainty that the transactions did occurred and that the assets exist and are a property of the organization. Substantive, analytical procedures can also be conducted. The employees involved in the area that the fraud occurred can also be interviewed to find out what they know about the fraud incident (Rezaee & Richard, 12).

A company can employ certain internal control measures to prevent the occurrence of fraud. The company can safeguard its assets from theft by employing a guard to secure the company’s assets. This way, no employee can steal the assets. Unauthorized persons will also be prevented from gaining access to the assets. For a transaction to take place, the officer in charge of the department should certify the transaction. No transaction should take place without the consent of the officer in charge. This will enable the company to know the amount of receipts they get and the amount of purchases they make (Wells, 66).

It also reduces the number of possible misstatements. The company should accurately record its transactions and arrange them in the order of their occurrence when filed. This will enable easy retrieval of the required transaction for reference when needed. The company should always ensure the transactions are made in the company’s name and not the name of the employee. This in most cases reduces the theft cases. Finally, the internal control system in place should be strong. The auditor should identify weaknesses in the internal control system early. A weak internal control system paves ways to possible errors and frauds (Shim, 78).

Works cited

Cendrowski, Harry, James P. Martin, and Louis W. Petro. The Handbook of Fraud Deterrence. Hoboken, N.J: Wiley, 2007. Print.

O’Gara, John D. Corporate Fraud: Case Studies in Detection and Prevention. Hoboken, N.J: Wiley, 2004. Internet resource.

Rezaee, Zabihollah, and Richard Riley. Financial Statement Fraud: Prevention and Detection. Hoboken, N.J: Wiley, 2010. Print.

Shim, Jae K. Internal Control and Fraud Detection. Cranbrook: Global Professional, 2011. Print.

Wells, Joseph T. Corporate Fraud Handbook: Prevention and Detection. Hoboken, N.J: John Wiley & Sons, 2007. Print.