Submit the introduction to fraud as it applies to your case study of.pdf
- 1. Submit the introduction to fraud as it applies to your case study of WorldCom analysis. Consider the elements of fraud, the theories of crime causation, red flags of evidence based on the elements of the fraud triangle, regulatory and legal factors in preventing and/or detecting fraud, and developments in the accounting industry that impact fraud investigation Solution Fraud:Fraud simply meaning is a false representation of a matter of fact-whether it is by a word or by conduct or by hiding that was required or important to disclose.Gaining an unfair advantage over another person is considered fraud (Romney & Steinbart 2008). To be considered a fraud, the deception must be characterized by “a false statement, representation, or disclosure”; “a material fact,” that causes the fraudster to initiate the fraud; the “intention to deceive”; a “justifiable reliance” of the fraudster on the misstatements; and an injured party.While there are different types of fraud, the most common type of fraud is the misstatement of financial statements (Albrecht & Albrecht, 2004). The fraud is committed on behalf of the organization, usually through the acts of top management, as in the case of WorldCom. In management fraud, management is the perpetrator and the companys stockholders, lenders, and other users of financial information are the victims (Albrecht & Albrecht 2004).The reason behind these manipulations is usually to “increase the companys stock price, meet cash flow needs, or hide company losses and problems”. The final element of the fraud triangle is rationalization: a form of justification in the mind of the perpetrators of their illegal behavior (Romney & Steinbart, 2008). Most perpetrators, as in the case of WorldCom, are first-time offenders with no criminal background that allows them to use rationalization to hide their dishonesty (Albrecht & Albrecht, 2004). Due to the economic conditions that existed at the time of the fraud, the managers who made the journal entries presumed the misstatement to be a one-time act (Beresford, Katzenbach, & Rogers, 2003). WorldCom, a telecommunications company, was a victim of these expectations that led to the evolution of a fraud designed to deceive the public until the economic outlook improved. Through understanding what led to the fraud, how the fraud grew, and what its effects were, lessons can be derived to gain a better understanding of the reasons behind a fraud and to prevent future frauds from occurring or growing as big as the WorldCom fraud did.