ITS 4450 - Fraud Risk Assessment Tools and Investigation
Chapter 13, Liability, Asset, and Inadequate Disclosure Frauds
This lesson presents material from chapter 13. Objectives important
to this lesson:
Understatement of liabilites
Overstatement of assets
This chapter begins with a particularly boring account of false financial
statements filed by a garbage company. The author was evidently so bored
by it that he began the chapter again with an even more boring story.
Oh...my...God. This is a thirty page chapter that the author summarizes
in six paragraphs. Let's start there.
A liability is something that your company owes. Understating liabilities
makes the company look more profitable than it is. Liabilities can come
due in the future or the present, and failure to report them is a kind
of fraud. You can even accrue liabilities from the past by merging with
another company that has not paid off its debts. Page 463 presents a list
of possible kinds of liability fraud, and the financial ratios and line
items that should be examined for each of them.
The text discussed misreporting assets in another chapter. The effect
on the books is the same in this chapter: show more value and the company
looks more prosperous. A chart about asset fraud appears on page 472.
It is not as helpful as the one about liability fraud, mainly because
there are so many kinds of assets and ways to misrepresent them.
The third topic in the chapter is fraud based on inadequate disclosure.
The first example meets that definition, but it is so much more. The company
in the story sold stock based on an invention they did not own and could
not market. Inadequate disclosure? Yes, if you assume that the initial
disclosure should have been that the company was represented by liars
and flim-flam men. This portion of the chapter does not present a chart
of fraud types and documents to check. In the case of inadequate disclosure,
the risk is more general. It may be, as in the examples, that the entire
story the company is telling is a lie.
Since we are talking about con men, once again, let's visit with Frank
Abagnale for a few minutes, again.
And if that doesn't do it for you, watch a few episodes of Sneaky Pete on Amazon Prime. It's a good set of lessons on being a con man.
Continue the reading assignments for the course.
Complete the assignments and class discussion made in