Financial fraud can be devastating to a business. When a company or accountant misrepresents a company for the sake of benefiting individuals or the company itself, this can be the source of major lawsuits.
Financial statement fraud can take on a variety of different forms. It may include someone hiding the liabilities from the balance sheet, incorrectly disclosing financial deals or overstating revenue. Those who commit financial fraud may also inflate an asset’s net worth. There are ways to protect a company against the fallout of financial fraud.
If you want to protect your company against financial statement fraud, it makes sense to try to catch it in advance. There are a variety of red flags that accountants can use to spot fraud. Accountants can use vertical analysis, which takes every income statement item as a percentage of revenue and then compares those numbers to the trends year after year. If there is a significant change, it could be the sign of a problem. Accounting irregularities are a sign of fraud.
When it comes to your business’s protection, financial statement fraud can be protected through accountant liability coverages. If your accountant winds up in a lawsuit, the insurance coverage can help pay for the fees.