Book Review: Financial Statement Fraud Prevention and Detection
Financial Statement Fraud Prevention and Detection
by Zabihollah Rezaee and Richard Riley
Everyone has heard about the major corporate fraud cases such as Enron and many people either lost money or know someone who lost money as a result of such fraud. Most CPAs are familiar with Sarbanes-Oxley, even if they haven’t worked on audits or internal control reviews.
The authors concentrate on public company financial statement fraud and its prevention, and cover:
- the history of financial fraud,
- how corporate structure and governance should function to prevent fraud,
- common fraud schemes and red flags,
- how internal and external auditors should work to prevent and detect fraud and
- the increasing danger with hackers and electronic commerce
Although many other books have covered the same historical fraud cases covered here, these cases provide perspective and a hope that we can avoid repeating the past.
Why is this important
Financial statement fraud appears to be increasing rather than declining, with new devious approaches to fraud along with the tried and true methods. The rise in outside regulation of accountants in the form of the Public Company Accounting Oversight Board demonstrates the growing concern of the public about the reliability of audited financial statements.
When this subject is applicable
Although the text concerns fraud in larger public companies, many of the prevention, detection and correction mechanisms discussed are applicable to any size company, including small privately held companies and non-profits.
How to apply this
This book provides an overview of the types of financial statement fraud that can occur and what standard controls and procedures should be in place to prevent such fraud. Several checklists and are included such as:
- Pressures, opportunities and attitudes/rationalizations related to risk of financial statement fraud,
- Finanicial statement fraud red flags,
- Audit committee attributes,
- Internal audit roles and responsibilities and
- Ten keys to successful fraud examination.
Specific procedures are also detailed, such as the sample protocols of how to react to fraud allegations.
Who this book is for
Although this text is overview in nature, and does not have sufficient detail to fully implement a corporate fraud program, most financial professionals would gain an understanding of the general techniques fraudsters use and steps that can be taken to reduce fraud.
A CPA could be expected to have general knowledge of typical fraud schemes and how to prevent them and this book covers these subjects. The information would also be useful for members of audit committees or boards of directors, senior management, internal auditors, independent auditors and fraud examiners.
Financial Statement Fraud Prevention and Detection is textbook dry. Although it lacks the intrigue found in some of the other books on fraud, it is one of the most thorough books in terms of describing:
- Responsibilities of audit committees, boards of directors and management
- Roles of internal and external auditors and
- Rules and regulations related to fraud
This book is recommended as a reference book to read and then keep on hand for reference.