Manipulation of accounts means falsifying figures in books of accounts with the object of reporting net income more or less than what actually it is, or for making balance sheet figures to appear more or less attractive than what actually they are.
Directors may be interested in reporting a higher net profit in order to win shareholders' confidence or to earn more commission if they are entitled to a commission on profits or to fetch better price for the shares they hold. In order to show inflated profits such methods are employed as inflating sales, suppressing purchases, writing off inadequate depreciation, providing inadequate provision for bad debts, etc.
On the other hand, management may be interested in showing a net profit less than the company actually earned. The intention for doing this may be to deceive tax authorities or to buy shares of the company at a low price. In order to show lower profits management may employ such methods as suppressing sales, inflating purchases, making excessive provisions for depreciation and bad debts, etc.
Manipulation of accounts is done by director and top management; therefore, for the auditor it is very difficult to detect it. The auditor must make intelligent searching inquiries to detect fraudulent manipulation of accounts.
Directors may be interested in reporting a higher net profit in order to win shareholders' confidence or to earn more commission if they are entitled to a commission on profits or to fetch better price for the shares they hold. In order to show inflated profits such methods are employed as inflating sales, suppressing purchases, writing off inadequate depreciation, providing inadequate provision for bad debts, etc.
On the other hand, management may be interested in showing a net profit less than the company actually earned. The intention for doing this may be to deceive tax authorities or to buy shares of the company at a low price. In order to show lower profits management may employ such methods as suppressing sales, inflating purchases, making excessive provisions for depreciation and bad debts, etc.
Manipulation of accounts is done by director and top management; therefore, for the auditor it is very difficult to detect it. The auditor must make intelligent searching inquiries to detect fraudulent manipulation of accounts.
