How To Spot Financial Statement Fraud

Fraud is a major problem within businesses and was one of the underlying factors that contributed to the 2008 recession in the United States. There are many types of fraud that occur, which can make detecting financial statement fraud difficult. However, it is vital that financial professionals are able to quickly spot warning signs and uncover deceptive accounting practices. These tips can help you identify warning signs early.

Be Aware of Financial Red Flags

There are some early warning signs that you might notice before fully evaluating any financial statements. These include:

  • A business that is reporting strong growth while most other, similar businesses in the same industry are struggling.
  • Inconsistencies between financial statements
  • Weak internal governance
  • Valuations that do no line up with industry standards

Continually Analyze Financial Statements

It is also important to continually scrutinize financial documents. This can help you notice inconsistencies as they appear instead of having to search through old records to uncover the problem later on. It also demonstrated your detachment from the fraud, which can be critical to maintain your professional integrity and license going forward.

Financial statement fraud is a serious crime that has far-reaching implications. As a financial professional, you need to learn how to spot warning signs early. This not only stops the fraud and minimizes its effects, but it also protects your professional interests.