Financial statement misrepresentation was found in only 5% of all fraud cases examined, but it was the most costly form of fraud with median losses of $4.25 million per occurrence. It also took the longest amount of time to detect. While the average fraud scheme lasted approximately 18 months before it was detected, fraudulent financial statement schemes went on average 25 months before they were detected. Unlike

Sunbeam – Created restructuring reserves and reversed them into income the following year to give an illusion of a turnaround so that the company could be sold at an inflated price. They also concealed merchandise returns and used accelerated sales methods or channel stuffing (Administrative Proceeding File in the Matter of Sunbeam).

Highlights of the Sarbanes-Oxley act are:

Another high profile case is the SEC’s complaint against WorldCom, Inc. The company was charged with misstating financial statements over a period of two and a half years. During this period, as a result of improper accounting procedures, net income was overstated by approximately $9 billion, with an offsetting overstatement of capital assets on the balance sheet. Again, these fraudulent activities were directed and approved by WorldCom’s management team. WorldCom engaged in these activities in order to keep increasing operating costs down and meet the revenue expectations of Wall Street analysts and support the market price of its common stock (SEC Complaint against WorldCom).

Tyco – Three top management executives took out hundreds of millions of dollars of low interest and interest free loans from the company and subsequently had the company forgive many of these loans. The SEC is involved because Tyco failed to disclose this material information to investors (SEC Sues Former Tyco CEO).

Some topics in this essay:
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