Matakuliah : F0184/Audit atas Kecurangan
Tahun
: 2007
Financial Statements Fraud
Pertemuan XXII
Learning Outcomes
• Mahasiswa diharapkan dapat melakukan analisa
terjadinya sebuah kecurangan dalam pelaporan
keuangan
• Mahasiswa diharapkan mengetahui ancaman yang
dapat terjadi dalam aktivitas pelaporan keuangan
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Outline Materi
• Fraud Definition
• Red Flag of Financial Statements
• Methodologies of financial statements fraud
– Earning Manipulation
– Earning Management
– Balance Sheet Manipulation
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Definition
SEC define as:
It shall be unlawful for any person, directly or indirectly,
by the use of any means or instrumentality of interstate
commerce, or the mails, or of any facility of any national
securities exchange,
a) To employ any device, scheme, or artifice to defraud
b) To make any untrue statement of a material fact or to
omit to state a material fact necessary in order to
make the statement made, in the light of the
circumstances under which they were made, not
misleading, or
c) To engage in any act, practice, or course of business
which operates or would operate as a fraud
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Definition (Con’t)
SAS No. 82 state:
“Misstatement arising from fraudulent financial reporting
are intentional misstatement or omissions of amounts or
disclosures in financial statements to deceive financial
statements user.”
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Red Flag
SAS No. 82 has listed 25 red flags related with fraudulent
financial reporting that put into three categories:
Management characteristic and influence over the
control environment
Industry conditions
Operating and financial stability characteristic
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Red Flag (Con’t)
SAS no.82 supersede by SAS No. 99 in 2002. In here the
red flag is put into different categorization:
 Incentives and pressures on management to commit
fraud
 Opportunities to commit fraud
 The attitudes and rationalizations found among those
who commit fraud
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Risk Factors Relating to Misstatements Arising
from Fraudulent Financial Reporting
Incentives / Pressure
1. Conditions that threatening Financial stability:
– High Competition with declining margins
– High vulnerability of rapid changes
– Significant declines in demand and increasing business failure
– Threat of bankruptcy, foreclosure or hostile takeover imminent
– Negative or unable to generate cash flow
– Rapid growth or unusual profitability
– New accounting, statutory, or regulatory requirements
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2. Excessive pressure for managements are:
– Profit expectation from analyst, investors, creditors and external
parties
– Require additional debt or equity
– Fail to meet debt repayment
– Significant pending transaction
3. Financial performance entities that threatening are:
– Significant financial interest
– Significant portions of their compensation being contingent
upon achieving targets
– Personal guarantees of debts
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4. Excessive pressure on management to meet goals that set up by
board of directors
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Opportunities
1. Fraudulent financial reporting can arise from:
– Related party transaction or transaction not audited
– Strong financial presence or ability to dominate the industry
sector
– Subjective judgments or uncertain estimation that are difficult to
corroborate
– Significant, unusual or highly complex transactions
– Significant operations with different business environments and
cultures exist
– Significant bank accounts or subsidiaries or branch operations
in a jurisdictions where no clear business justification
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2. The result of ineffective monitoring are:
– Domination of a person or small group
– Ineffective oversight over financial reporting process and
internal control
3. Evidence of complex or unstable organizational structure, are:
– Undetermined controlling over organizational or person
– Overly complex organizational structure
– High turnover
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4. Cause of deficient internal control are:
– Inadequate monitoring of control
– Ineffective accounting and information systems
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Attitudes / Rationalization
Indication of risk factors are:
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–
–
–
–
–
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Ineffective communication, implementation, support or enforcement
of value or ethical standard or miscommunications
Excessive participation of non-financial management’s
Known history of violations of laws and regulation or claim against
other
Excessive interest to increase earning trend
Committed to achieve aggressive or unrealistic forecast
Failing to correct conditions on timely basis
Employing inappropriate way to minimal reported earning for tax
reasons
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8. Attempts to justify incorrect accounting
9. Improper relationship between management and auditor, can be
caused by:
– Frequent disputes
– Unreasonable demands on the auditors
– Formal or informal restrictions on the auditor
– Dominant management behavior in dealing with auditor
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