A presentation by Jeremy Cooper, Deputy Chairman, ASIC, at a directors' briefing, AICD, 8 June 2005.
What is financial statement fraud?
Definitions differ, but the common thread is that financial statement fraud involves deliberately misleading or omitting amounts or disclosures in financial statements in an attempt to deceive financial statement users, particularly investors or creditors.
When we talk about 'fraud' in this context, we are probably using the term more widely to include wrongdoing that would not traditionally be seen as fraudulent in the strict legal sense. However, to be a fraud, the wrongdoing must be deliberate and intentional.
This might involve:
- the falsification, alteration or manipulation of material financial records
- material, intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared
- deliberate misapplication of accounting principles, policies, and procedures used to measure, recognise, report, and disclose economic events and business transactions; or, - Intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.
For the purposes of this discussion, we are talking about financial statement fraud in a major public company context; a context that can affect confidence in the financial system. We are not talking about what might be called 'internal fraud' or a great many other types of dishonest conduct in corporate life. This is about projecting a false state of affairs on a large scale and in a very public context.