Question 24Q - Intermediate Accounting (Kieso)

Question

One writer recently noted that 99.4 percent of all companies prepare statements that are in accordance with GAAP. Why then is there such concern about fraudulent financial reporting?

Step-by-Step Solution

Answer

Concern that persists regarding fraudulent financial reporting includes:

• It impairs the entire financial reporting process, 
• Fails to supply information to the users,
• Fails to notice huge fraud.

Meaning of Financial Statement

The term financial statement is understood by its name because it is a statement that provides financial information of a company for a specific period of time. A financial statement records all business transactions and includes the financial performance of the business.

Cause behind concern about fraudulent financial reporting

Concern prevails regarding fraudulent financial reporting as it weakens the way of reporting financial information. Moreover, financial information users are unable to receive the right information which in turn causes improper allocations of economic resources. Additionally, the inability to identify enormous fraud can result in additional government inspection of the accounting profession.