Corporate fraud
Introduction
In the contemporary world, money is stolen from corporations by use of the pen to the extent of creating a significant problem. Globalization has created a dynamic business environment that is characterized by increased competition for profits and market expansion. Stock prices act as an indicator for corporate performance, and this results in undesirable but intentional corporate fraud by business managers. According to the Standard on Auditing (2004), fraud is defined as the use of deception by an individual with managerial and governance responsibility to attain an unfair and unlawful competitive advantage. As such, corporate fraud is an intentional act to possess money, property, and enjoy corporate advantage through illegal means (Singleton & Singleton, 2010). Therefore, corporate fraud exists where there is a false statement, knowledge of management, strong belief, and financial damage (Golden et al., 2016).
In a business organization, corporate fraud occurs through embezzlement of assets, corruption, and provision of false financial statements (ACFE, 2014). Asset misappropriation is a type of corporate fraud that is undertaken by employees, and it results in misuse of the company’s assets. Additionally, financial misstatement is a deliberate false representation of materials that is being conducted by manipulating revenue, hiding liabilities, and failure to disclose beneficial information to the organization. The management propagates financial management fraud, and this makes its detection to become complex (Razaee, 2015). Parmalat, Olympus, Enron, and HIH are global examples of financial statement fraud. ACFE (2014) has reported that business organizations lose about 5% of revenue because of corporate fraud. Additionally, corporate frauds affect investors’ confidence within economy capital market.
Currently, the global market has seen a rapid increase in corporate fraud cases. As such, stakeholders need to identify red flags as a way of detecting fraud and apply control measures. Detection and management of corporate fraud is achieved through implementing internal controls, proper governance, zero-tolerance to fraud, increased whistleblowing, and application of surveillance tools. Technology development has provided forensic accounting as a scientific approach to detecting and preventing corporate fraud (Singleton & Singleton, 2010). Here, accounting, auditing, and investigation are integrated and performed with a cynical attitude to identify fraud (Mukoro et al., 2013). Therefore, it is important to research about corporate fraud.