The cover-up fraud of cooking the books

On Behalf of | Jun 21, 2022 | Firm News

Accounting fraud, also known as cooking the books, is the act of falsifying accounting records. One reason is to pretend that a company is doing better financially than it is. There are several, unique techniques that companies in New York use to cook their books.

Fictitious revenue

Fictitious revenue is a company’s false inflation of earnings. They falsely increase the number of sales and revenues that they earn, invent fake companies or invent sales that never happened. This common scam is seen at all levels of industry from family businesses to billion-dollar corporations.

Accelerating revenue

Accountants accelerate their revenues by claiming that they have earned the full amount of revenues when the money is yet to be earned. They may do this after receiving large upfront payments and expecting to see gradual revenues over the years.

Channel stuffing is a type of accelerated revenue that is classifying received merchandise as sold when it should be listed as inventory. The company exaggerates its sales and makes customers believe that they have certain merchandise in its possession when they don’t.

Non-recurring expenses

Non-recurring expenses are one-time payments that require companies to set aside money in their accounts. If they reserve too much money, they often return the money to another income or expense account. They commit financial fraud by covering up the sources of the income and expenses that they’ve spent or earned.

Companies cook their books by falsifying or exaggerating their financial successes. They focus on modifying accounting records to manipulate the data that is sent to consumers, investors and competitors. The main purpose is to make the business seem more successful than it is and encourage continual investments.

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