Title: Effectiveness Of Internal Controls In Preventing Financial Statement Fraud
Authors: Phinna Goodluck Amafade
Volume: 8
Issue: 7
Pages: 101-106
Publication Date: 2024/07/28
Abstract:
This article explores the effectiveness of internal controls in preventing financial statement fraud. The article discusses common methods of financial statement fraud such as improper revenue recognition, concealed liabilities, and improper assets valuation. It also examines the consequences of financial statement fraud, including legal repercussions, reputational damage, and financial losses for stakeholders. The role of internal controls in preventing financial statement fraud is highlighted, emphasizing the importance of segregation of duties, risk assessments, and control activities. Case studies of high-profile financial statement fraud cases, such as Enron and WorldCom, illustrate the devastating impact of fraud on companies and investors. Best practices for implementing effective internal controls, leveraging technology, and complying with regulatory requirements are also discussed. Despite the benefits of internal controls, challenges and limitations exist. Those highlighted includes the complexity of financial systems, human factors, cost-effectiveness, limitations of technology, and management override. The article concludes by emphasizing the importance of continuous adaptation, ethical leadership, and transparency in combating financial statement fraud and maintaining trust in financial markets.