Fraud is considered to be the economic evil. It’s actually a tricky or unlawful way to obtain something. Fraud vanishes the trust of the person who had been victimized from it. Fraud got motivation from the will or desire to deceive someone or unlawfully capturing the money or the property from the person who previously trusted the person who had done fraud with him. This evil has wreaked up the faith among the persons and makes the community to be less depended to the term ‘trust’.
Fraud is done in almost every sector, its existence is popular in the business world where the person or the group of person aims to own unlawfully the money from the other party. Fraud violates the rules and conditions and is also fraud spawns the serious economic crime which we call as “Money Laundering”. The internal business environment is also not completely secure, even the fraud takes place in the financial statements of the company in which any internal individual had tried to own something which is against the company’s policy.
Frauds in the financial statements have some unique red flags which are common and should be checked thoroughly. These red flags are:
1. Revenue recognition scheme: here the management wants to hide the actual number of sales. They show the wrong recording.
2. Fictitious revenue: here customers records are missing, unusual increase in assets take place, account receivable portion is actually collected, but not recorded for the purpose that some day it will be marked as bad debts.
3. Inadequate disclosure: legal contingencies are wrongly recorded, the transactions are recorded in a complex manner
Beside this, there are some various common fraud cases which might include the improper valuation of assets etc. For detecting these fraud cases various methods are applied which includes vertical and horizontal checking, frequently conducting ratio analysis, using SAS 99 audit guidance etc.