How to Handle Fraudulent Financial Reporting
19

Jan 2021

Reporting of the financial data of the company is very important for both the management of the company as well as the investors of the company. we have seen many instances in which the company tried to cheat its way to a better profit and was caught at last with the imposition of heavy penalties and fines.

There have also been great developments in the reporting methods and standards in the last decades and more and more improvements are being made periodically. Financial Reporting in a wrong manner may look like a very simple option to make a quick profit but can break a company.

Let us first understand what Financial Fraud is.

What do you mean by Fraudulent Financial Reporting?

Fraudulent Financial Reporting means that incorrect information is provided in the financial reports of the company. This is either by the management knowingly or is done by mistake. If it is done knowingly, it can be done to show either change in the financial status of the business or to dupe the potential investors into investing in the company. Conducting an Audit of the company can help in figuring out the fraudulent reporting before it is too late

Fraudulent Financial Reporting is also known as cooking books in layman’s language. This is different from the misappropriation of the assets of the company and can be a difficult task to figure out the mistake. This type of fraud requires a person to prepare the financial books in such a manner that they show a profit in every way. Since it requires Fraud in the reporting and not the buying or selling of assets, it is a hard activity to detect.

Steps to handle Fraudulent Financial Reporting?

There are many different ways by which one can understand that such activity is prevalent in your business. Some of the ways to detect and address said Fraudulent Financial Reporting are given below:

1.Creating the Right Culture

The culture which is being followed in the business plays a big role in the decisions which are made and the fraud which is conducted. If the senior management is corrupt and is used to take the help of unethical ways in business reporting, then eve the juniors may learn the same thing and will use it in the future. This means that fraudulent activity can be stopped if the correct and ethical culture is followed by everyone.

2.Question the Results if they are Accurately Met

Accurate results are very hard to achieve especially in a business environment. The result may increase or decrees depending upon the environment and personal situations. This means that if the business results are accurate the management should find out if all the results are proper and the books are not tampered with.

3.Employ people who will Question Decisions

Every business should hire people which will question the results of the business and the various decisions of the management. This will not only create a better culture in the business but will also help in understanding which decision will be the correct one according to the circumstance.

4.Conduct Analysis and Research on Periodic Basis

There is a sure-shot way of avoiding any kind of fraud in reporting and that is to check and recheck everything again and again. If the management conducts Analysis of the various financial reports and conducts researches from time to time, then the Fraudulent Financial Reporting will be reduced drastically. 

5.Keep Track of the Growth of the Business. 

Keeping track of the growth of the business will help the management to actually keep track of what things are going wrong in the business. Creating benchmarks will help the business in analysing the business activities and if the resources are being wasted or the resources could be put to better use. Keeping track of business will also help in creating a plan for the future.

By using the above-mentioned techniques, the management can better manage the business and can ensure that no fraud is being conducted in the business.

To create a plan for the business and to have great insight into the working of the business, you can take assistance from JAXA Chartered Accountants.

They also provide many different services such as Accounting Services, Auditing Services, ESR Related Services etc. which will help your company to grow and be more profitable. For more information on the different services, feel free to Contact Us. We will be happy to help.