Accounting fraud is a term used to describe a situation when an employee of a business entity allocates the funds to personal interest, misappropriates or embezzles money and other resources. All the personnel in a company in a position to steal ranging from managers to chief accounting financial officer can initiate this kind of fraud (Agrawal and Cooper, 2015). Accounting frauds normally are not quickly realized which in the long run can cause failure in the business in question.
About the local accounting frauds in the ISCA organization, the JSI Shipping Director of the Singapore-based subsidiary engaged in an account receivable accounting fraud ranked as local case 8 in the ISCA organization. The fraud is categorized as such in nature because the director was involved in a scheme which diverted JSI shipping profits for his benefit.
The incentive to commit fraud is the reason why one commits fraud. About the JSI shipping company scandal, the perpetrator of the fraud who was the director was overwhelmed with greed and selfishness that he decides to divert profits that should go to the firm to his benefit at the expense of the company (Thibodeau and Freier 2015). Opportunity to commit fraud is the situation that allows fraud to happen, JSI company internal control and corporate governance were weak and failed to obtain independent verification of the Singapore-based director's entitlement to remuneration thereby giving the manager a chance to misappropriate the profit realized. Rationalization of committing fraud relates to mind justifying the fraud (Bhasin, 2015). The director of JSI firm in Singapore defended his actions by convincing himself that no one would notice and compared to the efforts he has put in place for such much profits realized he has a right to benefit himself rather than the firm at large. The above three conditions must be present in varying degrees for fraud to occur.
The external audits should have detected the frauds using their objectivity applied in evaluating evidence, they should have gone further to verify the director's entitlement to remuneration, the cheaque signing limits of the director, and the renovation expenses recorded, and the actual spent. The fact that the audits relied on management representation and did not go further seek approval from the initial branch management adoption in the USA made it difficult for them to realize the fraud carried out by the director until when a staff reported to the USA leaders (Hribar, Kravet, and Wilson, 2014). The external auditors unlike the internal auditors they are not in the way directly attached to the organization, and it’s their report that can identify any discrepancies which internal control could have been overridden and not able to question such acts by the top management. The director of the Singapore branch could have manipulated the systems making it difficult to identify any fraud by the internal auditors; it’s only the external auditors who could have verified all these discrepancies
Financial scams tend to display a false figure related to revenues, sales and the profits a firm generates. It affects the investors' interest and progress of that specific company.
Agrawal, A., & Cooper, T. (2015). Insider trading before accounting scandals. Journal of Corporate Finance, 34, 169-190.
Bhasin, M. L. (2015). Corporate accounting fraud: A case study of Satyam Computers Limited.
Hribar, P., Kravet, T., & Wilson, R. (2014). A new measure of accounting quality. Review of Accounting Studies, 19(1), 506-538.
Thibodeau, J. C., & Freier, D. (2014). Auditing and accounting cases: Investigating issues of fraud and professional ethics. McGraw-Hill, a business unit of The McGraw-Hill Companies, Incorporated.
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