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Risk of fraud

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Do firms really lose money to fraud? If so, How much? And when does it become material?

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Solution Summary

The solution discusses how firms lose money to fraud. It also provides a listing of notable accounting scandals since 1980. Additional sources are provided.

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Accounting scandals or corporate accounting scandals are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates.
In public companies, this type of "creative accounting" can amount to fraud and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States.

In 2002, a wave of separate but often related accounting scandals became known to the public in the U.S. All of the leading public accounting firms?Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, PricewaterhouseCoopers? and others have admitted to or have been charged with negligence in the execution of their duty as auditors to identify and prevent ...

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