Keeping Everyone Honest: Financial Statement Fraud Schemes and IFRS

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Misty Carter, CFE
ACFE Research Specialist

The International Financial Reporting Standards (IFRS) are becoming familiar to many in the accounting and auditing world, especially those who perform work internationally. For those who are not familiar with the term, IFRS are a set of accounting standards developed to drive consistency in how publicly traded companies prepare financial statements. In other words, its purpose is to ensure that companies that transact business internationally are on the same page when reporting financials. I like to refer to it as a way of “keeping everyone honest.” Personally, I think that the idea of having one global standard for how companies prepare and report their financial statements is a good one. In fact, approximately 120 nations either permit or require IFRS. The European Union (EU) has fully conformed to IFRS and requires companies whose securities are listed on the EU-regulated stock exchange to prepare their financial statements in accordance with IFRS.

If someone were to ask my opinion on the biggest impacts the IFRS have on financial statements, I would have to say it would be related to how a company recognizes its revenue and values its assets. Why? Because these are the two areas in which fraudsters most commonly manipulate or falsify financials. When it comes to committing financial statement fraud schemes, falsifying revenue and overstating or even understating assets is a common theme — a theme that is not limited to any one specific accounting standard used in any particular country. I believe that it is vital for all companies, regardless of where they operate, to be aware of financial statement fraud schemes so they can be proactive in detecting red flags and identifying ways to prevent these schemes.

For those of you interested in learning more about IFRS and common financial statement fraud schemes, I encourage you to check out the new online self-study course, International Financial Reporting Standards for Financial Statement Fraud. This course provides an overview of IFRS with an emphasis on revenue recognition and the fair value of assets. It also covers the basics of financial statement fraud schemes, including red flags and methods to detect these schemes.

With so many companies operating globally, it is vital that everyone be aware of new and emerging changes in the financial world. One way to stay abreast of these changes is by becoming familiar with IFRS and its impact on financial statements. It is also essential that all companies take the necessary steps to prevent and detect financial statement fraud schemes.