Question

Describe the profession’s response to fraudulent financial reporting.

Answer 1

Financial reporting refers to the statements that represent the financial position of the organisation. Fraudulent financial reporting means an intentional act of providing materially incorrect financial statement whether by ommitting or altering the data.

There can be several reasons for fraudulent financial reporting like poor internal control, less ethical values, avoidance of basic principles, lack of management involvement etc in the process of finalising financial statements.

However,steps have been taken to reduce fraudulent financial reporting :

1. section 404 of Sarbanes Oxley Act, 2002 requires external auditor to provide a report on organisation's internal control which makes organisation to pay more attention towards such issues.

2. Various stanadards have been issued for accounting and auditing which helps in management of accounting policies and response.