Financial Statement Fraud Risk Escalates in Pandemic - CFO Journal. - WSJ - 1 views
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nbakir on 14 Oct 20The article, "Financial Statement Fraud Risks Escalates in Pandemic" by Deloitte Editor focuses on the escalation of risk that is as a result of financial statements fraud. According to the report, the escalation is more persistent due to the COVID-19 pandemic. Fraud occasions consist of three elements, mainly related to pandemics. Pressure due to money shortfalls and other setbacks brought about by the pandemic insert some strains to the organizations that may cause some liquidity problems and significantly affect shareholders' expectations (Deloitte, 2020). Opportunity is also an element of fraud events. The situation of the pandemic may push some organizations to consider some staffing changes to counter the problems brought about by the pandemic. The third element is the rationalization. In times of a pandemic, some individuals or organizations tend not to separate acceptable from unacceptable behaviors. Others engage in manipulative actions in the name of the crisis, which they would otherwise not consider. The article explains that keen examination needs to be done during revenue recognition. Some organizations may fabricate or misstate their revenues to prove their perseverance during a challenging business environment. Another financial reporting risk lies in allowances and reserves. The author states that keen scrutiny needs to be done on the organization's reserve accounts since most of them are based on estimates and mere judgments. The management may be tempted to manipulate these reserves ways to favoring their bottom line. Valuation and impairments also form a financial reporting risk for examination. During turbulent times, organizations are tempted to give false valuations on their assets; hence keen examination would be needed. Additionally, restructuring charges brings a financial report risk in that some organizations may seek to write off their underperforming assets. In other cases, a business may include costs associated with the pandemic a