What is financial statement fraud in New York?

On Behalf of | Feb 1, 2022 | Fraud

Financial statement fraud is a serious issue that can have a negative impact on businesses and individuals alike in New York. Here’s a quick guide on financial statement fraud.

What is financial statement fraud?

Financial statement fraud is the intentional misrepresentation of financial information to deceive investors or other interested parties. Financial fraud can be committed by individuals, groups or companies and can have a number of serious consequences, including:

  • Decreased stock prices
  • Loss of investor confidence
  • Penalties from government agencies
  • Imprisonment

The different types of fraud

  • Revenue inflation: This occurs when a company artificially increases its revenue by recording fictitious sales or transactions. One way to do this is to create fake customers or sales records.
  • Expense understatement: This occurs when a company underestimates its expenses in order to make its financial situation appear healthier than it is. Individuals can do this by underreporting or falsifying expenses.
  • Asset inflation: This occurs when a company artificially increases the value of its assets by recording fake transactions or creating false documents. This can include overstating the value of inventory, investments or property.
  • Financial statement manipulation: This occurs when a company alters its financial statements to deceive investors or other interested parties. It can involve adjusting figures to make the company’s financial position look better or worse than it really is.

How to prevent fraud

There are several things that businesses and individuals can do to prevent financial statement fraud from occurring. These include the following:

  • Keep accurate and up-to-date records of all financial transactions.
  • Review financial statements regularly to ensure they are accurate.
  • Invest in software that can detect fraudulent activity.
  • Educate employees about the risks of financial statement fraud and what to look for.
  • Cooperate with government agencies and other organizations that investigate financial crimes.

Financial statement fraud is among the major threats that contribute to white-collar crime. Therefore, the consequences are quite harsh. If you are facing a charge, you might be able to use defenses like having no intention to deceive or accidentally giving false information.