What are the 5 methods of financial statement fraud? What ar
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What are the 5 methods of financial statement fraud? What are four important red flag areas of fictitious revenues?
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The solution discusses five methods of financial statement fraud.
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1. Fictitious revenues - the most common form is to record revenues that the company never received, in order to boost net income. This also includes recording loan proceeds as revenue instead of as a liability, which has been part of some of the biggest financial statement frauds in accounting history (including WorldCom).
2. Timing differences <--- this is the least frequently committed of the five types. Timing differences happen when a company records revenue and/or expenses in the wrong period. Companies will not record expenses to keep net income high, or will move the expense to the next period. Likewise, a ...
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