Most Common Accounting Frauds and How To Prevent It

Accounting fraud is much more common than people might think. The scale, type, and complexity of accounting fraud can greatly vary, which is why it is important to be familiar with their different types and use suitable solutions to prevent them. 

 

Some of the most common accounting frauds involve manipulating financial statements to give a false impression of the financial health of an organization. Moreover, employees or accountants can also provide wrong figures to mislead investors or shareholders. 

 

Professional accounting firms in Malaysia make sure that such accounting frauds are eliminated through reliable accounting services. 

 

Keep reading to learn all about the different types of accounting fraud. 

 
 

1. Overstating Revenue

A lot of companies make the ‘mistake’ of overstating their revenue. However, it is a significant fraud that can lead to a massive scandal when the stakeholders find out the actual worth of the company. 

 

Companies tend to overstate their revenue to hide the fact that they are actually operating at a loss. The company’s profits are inflated on the financial statements to create a fake public image. 

 

2. Lack of Records

Relying on professional accounting services is important as professionals will take care of every aspect of your finances. Otherwise, some companies can end up not adding significant expenses, either intentionally or unintentionally, to the financial statements. 

 

It causes the company’s profits to be overstated and its expenses to be understated. This is an accounting fraud as it creates a fake image of the company’s profits while, in reality, it might be operating at a loss. 

 
checking accounting mistake

3. Misstating Assets and Liabilities

Another popular form of accounting fraud occurs when organizations misstate their assets and liabilities. 

 

Most of the time, this type of fraud happens when the current assets are overstated and the current liabilities are understated. As a result, it causes misrepresentation of the short-term liquidity of the company. 

 

4. Accounts Receivable Funds

The purpose of the accounts receivable balance present on the balance sheet is to show an estimate of what accounts are collectible. Typically, it is less than the actual balance that will be collected by a company. 

 

However, without proper audit and accounting functions, the valuation of accounts receivable can get extremely out of range. A company led by corrupt management can also make fraudulent sales by creating fake records.

 

5. Accounts Payable Funds

Understating the payables means understating the expenses and overstating the net income. But the amount payable can only be understated by a small amount, so this type of accounting fraud is easy to detect.  

Prevention

Large-scale companies and multinational enterprises have separate teams for accounting and auditing. However, small and medium-scale companies that don’t have enough resources to implement efficient accounting standards often suffer the consequences of accounting fraud.

 

The good thing is that all types of businesses can rely on accounting firms in Malaysia to ensure the experts will handle the accounting functions and prevent a wide range of fraud. 

 

Some of the other useful tips to prevent accounting fraud are:

1. Examine the Bank Statement

Every business owner will receive an open bank statement at the end of the financial year. They should examine the bank statement and also look over other features, such as approving electronic payments and signing cheques.

2. Rely on Experts

If you have an in-house accountant, you should not let that same person handle all of your financial matters, such as creating financial statements.


Instead, you should consider outsourcing the accounting services to an accounting firm in Malaysia through which the experts can handle all of your accounting procedures.

3. Close the Accounting Period

Once a financial statement for a particular accounting year or period has been generated, you should close the period. It means not adding or minimizing any new financial items to it. It will significantly reduce the risk of accounting fraud.

4. Produce Relevant Records

Attaching scanned images to each transaction in the financial reports is a quick and smart way to get all the financial records you need. It will help you prevent a wide range of accounting fraud, as no one will be able to manipulate the amount entered in the statement.

5. Restrict Access

There should be a clear separation of duties between individuals who handle payment authorization, record keeping, auditing, and other accounting functions. Restrict the access of unauthorized individuals to financial records to ensure maximum safety.

Final takeaways

Many different types of accounting fraud can happen in a company. As a result, following the aforementioned tips become critical to prevent such fraud. 

 

Ultimately, relying on experts from accounting firms in Malaysia will help you prevent such accounting fraud from taking place in your company. 

 

Last but not least, companies can benefit from the professional advice provided by the accountants to streamline their accounting functions.