Professor Rashied Small | Executive | Centre of Future Excellence (CoFE) | South African Institute of Professional Accountants (SAIPA) | mail me |
Even in the best of times, companies may engage in financial statement fraud for various reasons. Management might want to avoid the wrath of their head office for poor performance, attract undeserved but much needed investment, reduce tax contributions, or even skim off money for themselves.
In a disrupted global economy, the pressure is much greater to commit this type of fraud, so accountants must be aware of the red flags indicating that financial statement fraud is, or has a high probability of, occurring.
Organisational red flags
The overall state of an organisation, its management and its operating environment may provide clues to its potential to host fraud. Red flags.
Red flags include:
- Lack of independence
Accountants are restricted from acting independently, the competence of staff is questionable, there is a lack of oversight or due diligence by managers, or internal controls are not enforced.
- Weak internal controls
Internal controls are undocumented, based entirely on the commands of the business owner or financial officer, or defer to the automated business rules of the company’s chosen accounting software.
- Management style and governance
Managerial integrity and…
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Read the full article by Professor Rashied Small, Executive, Centre of Future Excellence (CoFE), South African Institute of Professional Accountants (SAIPA), as well as a host of other topical management articles written by professionals, consultants and academics in the August/September 2022 edition of BusinessBrief.
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