Fraudsters use the accounting system as a tool to generate the results they want in ___________ approach:
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A. B. C. D.B
The correct answer is B. Playing the accounting.
Fraudsters use the accounting system as a tool to manipulate financial records and generate the desired results through various fraudulent practices. This approach is commonly known as "playing the accounting."
When fraudsters engage in playing the accounting, they exploit weaknesses and loopholes in the accounting system to achieve their fraudulent objectives. They manipulate financial transactions, records, and reports to conceal their illicit activities and create a false impression of the company's financial position.
Fraudsters may employ several techniques to play the accounting. Some common methods include:
Fictitious Revenues: They may create fictitious sales or inflate the revenue figures by recording nonexistent transactions or misrepresenting the nature or value of actual transactions. This can make the company appear more profitable than it actually is.
Improper Expense Recognition: Fraudsters may delay or defer recording legitimate expenses to inflate profits temporarily. They may also misclassify personal expenses as business expenses or shift expenses to different accounting periods to manipulate financial results.
False Asset Valuation: They may overvalue assets or understate liabilities to inflate the company's net worth. This can be done by inflating the value of inventory, overstating the value of fixed assets, or understating the value of liabilities such as accounts payable or accrued expenses.
Off-Balance-Sheet Transactions: Fraudsters may engage in off-balance-sheet transactions to conceal liabilities or inflate assets. These transactions are intentionally kept off the company's financial statements, making it difficult for auditors and stakeholders to detect the fraud.
Manipulation of Reserves and Provisions: Fraudsters may manipulate accounting reserves and provisions, such as bad debt reserves or warranty provisions, to manipulate financial results. By understating these reserves, they can inflate profits in the short term.
Circular or Round-Trip Transactions: They may create fictitious transactions that involve circular movements of funds between different accounts or entities. These transactions are designed to give the appearance of legitimate business activity when, in reality, no economic value is created.
Fraudsters using the playing the accounting approach exploit their knowledge of accounting principles, internal controls, and the company's accounting system to carry out their fraudulent activities. Their aim is to deceive auditors, management, shareholders, and other stakeholders by presenting false or misleading financial information.
It is important for organizations to have robust internal controls, regular independent audits, and a strong ethical culture to detect and prevent such fraudulent activities. Certified Fraud Examiners (CFEs) play a crucial role in identifying and investigating fraud by applying specialized knowledge and techniques to uncover evidence of fraudulent accounting practices.