Accounting Manipulation Practices in Financial Statements: An Experience of an Asian Economy

Madan Lal Bhasin
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Madan Lal Bhasin: Professor, School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok, Kedah Darul Aman, Malaysia

International Journal of Economics and Financial Research, 2016, vol. 2, issue 11, 199-214

Abstract: Accounting scandals and frauds are perennial; they have occurred in all eras, in all countries and affected millions of corporations. Unfortunately, there are few loopholes in accounting and auditing standards, which provide leeway and thus motivate accounting professionals to use aggressively manipulation practices. In fact, accounting manipulation (AM) involves the intentional cooking-up of financial records towards a pre-determined target. Every company indeed maneuvers the numbers, to a certain extent, as formally reported in its financial statements (FS) to achieve budgetary targets and generously reward senior managers. From Enron, WorldCom to Satyam, it appeared that window-dressing leading to AM is a serious problem that is increasing both in its frequency and severity, which undermines the integrity of financial reports and eroded investors’ confidence. The responsibility of preventing, detecting and investigating financial frauds rests squarely on Board of Directors and they should adopt preventive steps. Despite the raft of CG, and financial disclosure reforms, corporate accounting still remains murky and companies continue to find ways to play ‘hide-and-seek’ game with the system. Satyam computers were once the crown jewel of Indian IT-industry but were brought to the ground by its founders in 2009 as a result of financial manipulations in FS. The present study provides a snapshot of how Mr. Raju (CEO and Chairman) mastermind this maze of AM practices? Undoubtedly, Satyam scam is illegal and unethical in which computers were cleverly used to manipulate account books by creating fake invoices, inflating revenues, falsifying the cash and bank balances, showing non-existent interest on fixed deposits, showing ghost employees, and so on. Satyam fraud has shattered the dreams of investors, shocked the government and regulators and led to questioning of the accounting practices of auditors and CG norms in India. Finally, we recommend that “All types of AM practices should be legally recognized as a serious crime, and accounting bodies, law courts and regulatory authorities must adopt exemplary punitive measures to prevent such unethical practices.â€

Keywords: Frauds and scams; manipulation of accounts; Financial statements; Modus-operandi used; Satyam computer; Top-management team; Corporate governance; Forensic accounting; SEBI; SFIO; CBI; CID; India. (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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