ECON 1 Lecture 25:
Document Summary
Literature: chapter 2 p. 57 - 76, 81 - 84 + article dennis, s. a. , and k. m. Fraud: intentional act involving the use of deception that results in a misstatement of financial statements. Asset misappropriation: when perpetrator steals or misuses an organization"s assets. Fraudulent financial reporting: intentional manipulation of reported financial results. Gain through the rise in stock price. 3 common means to accomplish fraudulent financial reporting: manipulation, falsification, alteration of accounting records or supporting documents, misrepresentations or omission of events, transactions, or other significant information. Ponzi scheme: when fraudster uses deposits of new investors to pay returns on the deposits of previous investors, no real investment is happening. Collapse if new investors do not join or if their deposits are too small. Fraudster usually gains trust through their action, their professional, social or religious affiliation. Incentive: management compensation schemes, financial pressures for either improved earnings or an improved balance sheet, debt covenants.
