Financial accounting basics in fraud cases
Fraudulent acts are usually of a financial accounting basics and nature. The fraud examiner must therefore understand the essential nature of financial transactions and how they affect records.
Additionally, the fraud examiner should have a grasp of both fundamental financial accounting and financial accounting basics.
Financial accounting basics about financial Statements
The results of the accounting process are summarised and consolidated reports, or financial accounting basics statements, that present the financial position and operating results of an entity. It is important to have a financial accounting basics understanding of how financial statements work because they are often the vehicles through which fraud occurs.
Financial statements are presentations of financial data and accompanying notes prepared in conformity with either generally accepted accounting principles (GAAP), such as International Financial Reporting Standards (IFRS) or a country’s specific accounting standards, or some other comprehensive financial accounting basics. The following is a list of typical financial statements and fundamental financial accounting:
- Statement of financial position or balance sheet;
- Statement of profit or loss and other comprehensive income or income statement;
- Statement of changes in owners’ equity or statement or retained earnings;
- Statement of cash flows;
Financial statements might also include other financial data presentations, such as:
- Statement of assets and liabilities that does not include owners's equity accounts;
- Statement of revenue and expenses;
- Summary of operations;
- Statement of operations by product lines;
- Statement of cash receipts and disbursements;
- Prospective financial information (forecasts);
- Proxy statements;
- Interim financial information (for example, quarterly financial statements);
- Current value financial presentations;
- Personal financial statements (current or present value);
- Bankruptcy financial statements.
Other comprehensive financial accounting basics include:
- Government or regulatory agency accounting;
- Tax-basis accounting;
- Cash receipts and disbursements, or modified cash receipts and disbursements.
Any other financial accounting basics with a definite set of criteria applied to all material items, such as the price-level fundamental financial accounting. Consequently, the term financial statements includes almost any financial data presentation prepared in accordance with generally accepted fundamental financial accounting or another comprehensive financial accounting basics.
Throughout this section, the term financial statements will include the aforementioned forms of reporting financial data, including the accompanying footnotes and management’s discussion. For most companies, however, a full set of financial statements comprises a statement of financial position (balance sheet), a statement of profit or loss and other comprehensive income (income statement), a statement of changes in owners’ equity or a statement of retained earnings, and a statement of cash flows, as well as the supplementary notes to the financial statements. Therefore, fraud examiners should be familiar with the purpose and components of each of these financial statements and financial accounting basics.