Financial Statement Fraud A Critical Review of Revenue Recognition/Asset and the Responsibility of the Auditor for Detecting Financial Statement Fraud

Abstract

These study aims at investigating the reasons for the huge financial statement frauds in big companies that engulfed? the world especially in the USA between 2000 to 2008 and why auditors were unable to detect thern. To enable me achieve this purpose three multinational corporations were used for the study, two from USA and one from Italy. The main objective of this study was to evaluate the role of the auditor . in fraud detection and to know the reasons why senior executive perpetrate this fraud. The researcher made use of questionnaires which were address to tVJO international auditing firm's base in Nigeria and one to the regulating body ICAN. The questions' were in the form of interviews which gave the respondent an open mind to give his or her own view point as concern reasons why these massive frauds have remain un-detected. The researcher also made use of secondary data obtained frorn books, the internet and the company's annual reports for the periods the fraud was committed. Data was analyzed using logistic regression , rnultivariate analysis, and sensitivity analysis. Findings from the research shows that top management where responsible for the frauds , evidence shows that internal control policies for the companies were prepared by top management who at the same time were those who perpetrated the fraud hence this control measures were meant to control lower management and not them. Secondly findings further show that, the Board of .Directors of these companies where dominated by friends and family members of the . -,CEO and thus helpinq incornmitting the fraud. One other assertion was to hike the prices of the stocks of the companies; consequently the books were cook to meet " V'Jall Street projections. Finally my results shows that the frauds in the three companies were very similar, first of all the founders of the companies were the main perpetrators of the frauds, secondly both occupy doub le positions of chairman and CEO and lastly the auditors of both firms had stayed for too long and also did non audit services for their firms which were more lucrative than the audit serv ices , this help compromise their independence as auditors. The researcher made some recommendations base on the Sarbanes Oxley Act of 2002 .