What Is Accounting Fraud?

Accuracy and honesty are essential when it comes to accounting. Any accounting error can have severe consequences, but fraud is a serious crime. As an aspiring accountant, it’s important to understand what constitutes accounting fraud, what can happen if it occurs and what you can do now and in your future career to avoid entanglement with accounting fraud of any kind.

Understanding Accounting Fraud

Accounting fraud is deliberate manipulation of accounting records. Everyone makes mistakes from time to time, but a simple accounting error shouldn’t be confused with accounting fraud. An error is accidental, while fraud is intentional. The people who commit fraud may do so to make a company’s financial prospects appear better than they are, to minimize the company’s debts or for personal financial gain.

Accounting Fraud Cases on the Rise 

Despite the major accounting scandals that have caught public interest since the early 2000s and the inclusion of ethics courses in modern college accounting curricula, it seems that accounting fraud is becoming more prevalent. Fraud cases filed in 2014 increased 47 percent from the previous year, according to Cornerstone Research’s Accounting Class Action Filings and Settlements report.

Though Accounting Web notes that the years predating 2014 were “two years of low activity,” the swell in accounting fraud cases shouldn’t come as much of a surprise. The previous year, a study by Big Four accounting firm PricewaterhouseCoopers found that among the organizations nationwide that had had a brush with accounting fraud, more than half had seen a rise in the amount of fraud cases. Understandably, accounting fraud had become a primary concern among businesses, as had bribery and corruption and cybercrime, Accounting Today reported.

It certainly sounds like a rise in fraud cases is a bad thing, but in fact, it may be the frequency of reporting fraud rather than the number of actual instances of fraud that’s increasing. The Cornerstone Research report stated that new and stronger internal controls, risk assessments and compliance programs within companies could translate to more instances of fraud being detected and reported, Accounting Web reported. Of course, fewer fraud cases overall would be preferable, but increased scrutiny on accounting practices is a step in the right direction.

When accounting firms fail to act ethically or keep records accurately, the consequences can be serious. Scandals, civil lawsuits and criminal charges can bring down even prestigious firms as well as skilled accountants.

You might be surprised to learn what trait characterizes most accountants who commit fraud. Often, they are overachievers with a strong desire to please others in their professional as well as personal lives, Forbes reported. This trait may make more likely to agree to unethical accounting requests from bosses, coworkers and clients.

By focusing on critical thinking as well as business ethics and refusing to let the sometimes stifling nature of the corporate world undermine their independent spirits, students and beginning accountants can reduce the likelihood that they will ever find themselves involved in an accounting fraud scandal.