One of the single most important roles of an accountant is to make sure financial statements and records are accurate. Yet accounting fraud remains a major problem in the economy. High-level personnel embezzle from their own companies. Stressed managers unethically mislead stakeholders. While some of the factors that contribute to fraud may actually be increasing instances of unethical behavior, accountants have the power to identify and fight fraud.
What Factors Contribute to Fraud?
There are three factors that make up what’s called the “fraud triangle,” according to Accounting Web: pressure, opportunity and rationalization.
Feeling pressure for an organization’s financial health to be better than it actually is can prompt company personnel to manipulate accounting documents. Whether the pressure is to please shareholders or meet requirements to attain bonuses, the end result is unethical accounting. With the pressure to report financial information transparently to shareholders on the increase, there may be more incentive than ever for personnel to commit fraud, Accounting Web reported.
Of course, no one can commit fraud without the opportunity to do so. With more requirements to share an organization’s financial information, there are also more chances for an organization’s insiders to manipulate that information.
Finally, rationalization is what contributes to even “otherwise ethical professionals” crossing the line from honest reporting to fraud,” according to Accounting Web. If the organization’s accounting professionals stand to gain promotions, bonuses and compensation of other kinds by presenting the information in the most favorable way possible, they may find themselves twisting the truth. Even a seemingly small lie or manipulation of accounting data can still constitute fraud.
What Accountants Can Do to Stop Fraud
If an accounting professional or firm fails to act ethically, the consequences can be serious. Scandals, lawsuits, criminal charges, the loss of accounting licenses and the closing of even prestigious firms can follow instances of accounting fraud. The more extensive that fraud is, the worse the consequences can be. That’s why it’s so important for accounting professionals – and accounting students preparing for their careers – to not only act ethically themselves, but to be able to recognize and stand up to fraudulent behaviors within organizations.
As accountants work with increasingly large amounts of data, they are more involved with matters such as inventory and purchase and payment patterns, according to Accounting Web. Requirements for more frequent financial reporting also mean that accountants are spending more time looking at and checking the accuracy of the information available to them. They have more of an opportunity than ever to notice inconsistencies and other evidence of potentially fraudulent behaviors – before the unethical accounting statements reach stakeholders outside the organization.
Organizations caught engaging in fraudulent or otherwise unethical behavior can face steep penalties. Yet factors like pressure, opportunity and rationalization unfortunately continue to foster fraudulent behavior. As an accountant, you are in an excellent position to spot fraud early on. Stopping fraud from occurring – and preventing clients from the penalties – may become an important part of your job.