Accounting fraud is the intentional manipulation of financial statements or tax returns for personal or corporate gain. For example, a business might overstate its revenue, understate its expenses, overstate its assets, or understate its liabilities. Here are several situations involving accounting fraud:
A business keeps its books open for several days past month-end in order to record additional sales transactions in the prior month. Doing so overstates revenue.
A business neglects to accrue expenses for services consumed within the month but not yet billed to the business. This is an understatement of expenses.
A business neglects to record depreciation expense. This overstates assets.
A business withholds several supplier invoices at month-end, so that they are not recorded within the correct period. Doing so understates liabilities.
These manipulations usually involve deliberate alterations, but can also relate to the omission of information that would otherwise change the perceptions of a user of the presented information. For example, not disclosing that a company has recently been named as the defendant in a major lawsuit by a customer might be of considerable interest to the investment community.
A person who engages in accounting fraud is subject to criminal prosecution.