Financial Statement Fraud
The modification or misuse of data used to produce financial records or accounts is referred to as financial statement fraud. Per year, public and private companies listed on the Securities Exchange Commission are required by statute to file their financial statements. Financial statement deception is committed with the intent of concealing a company's true financial status. Falsification of financial statements enables an institution to present a clearer yet incorrect financial picture to observers. Financial statement fraud can take many forms, including asset and liability abuse, posting fake earnings, overvaluing cash, and deferring expenditures. Financial statement fraud is mainly done to show that a company has met its financial target. The ultimate goal of fraud in most the cases is to increase the value of the shares. In rare instances, companies may manipulate their financial statements to show a lower taxable income. This is often done with the objective of reducing the company's tax liability. Investors and other interested parties follow keenly the quarterly and annual financial statement generated by companies. Managers and owners are always aware of the attention financial statements attract and the value attached to them, as such, they may do everything within their powers to ensure they post favorable results. Financial statement fraud misleads investors and other people that may be interested in the affairs of a company.
Diamond Foods Inc Financial Statement Fraud Case
Diamond Foods Inc, a snack food company, based in San Francesco United States was forced to make a payment of 5 million dollars to settle some civil charges made against it. According to Security Exchange Commission former company, top executives had waylaid investors about the cost of walnuts to increase revenue. The company former Chief Financial Officer, Steven Neil, was a mastermind of a plan meant to falsify the amount of cash the firm paid walnut farmers by postponing the expenses to the subsequent financial year. The financial statement manipulation allowed the company to report better financial results. The financial results exceeded the expectations set for the financial year 2010 to 2011 (Sarah, 2014).The share price of the company fell significantly from 90 dollars to 17 dollars after the issue of financial fraud came to light. According to Security Exchanges Commission, the company's former Chief Executive Officer, Michael was also part of the conspiracy. As the overall head of the company, the chief executive should have realized that the financial statement had been manipulated to depress the pricing of the walnuts. Instead, the chief, went ahead to ratify the falsified financial statements. Michael Mendes settled the charges of the case, but did admit or deny the charges filed against him. Steve Neil on the hand, through his attorney, Michael Shephards denied any wrongdoing and promised to clear his name in the court of law. The attorney said that the case was not based on facts (Sarah, 2014).
Impacts of Financial Statement Fraud
The intended victims of financial statement fraud are often shareholders, investors, and financiers like banks. Investors are likely to invest in a company whose financial position looks solid. Financial statement fraud misleads them to invest their money in the wrong firms. However, they lose their money when of the share price drops after the discovery of financial fraud. Creditors also lend money to companies whose financial future looks promising. Falsifying financial statement paints a good image of firms motivating creditors to lend. Nonetheless, they end losing their money if the companies fail to pay. Financial statement fraud is not committed by the company but by individuals within the company.
Works Cited
Lynch, S. (2014). Diamond Foods to pay $5 million to settle SEC fraud case. Reuters. Retrieved Nov. 14, 2017, from https://www.reuters.com/article/us-diamond-sec- accountingfraud/diamond-foods-to-pay-5-million-to-settle-sec-fraud-case- idUSBREA0813020140109
