![]() ![]() Accounting personnel need to know that they can abide by the accounting rules and that no one, no matter how far above them in the chain of authority, can compel them to override the accounting controls. These compromises can take the form of a corporate culture allowing any individual to use the leverage of their position in the organization to pressure a subordinate to bend the rules. Therefore, strong checks must be in place to stop managerial compromises to internal controls, resulting in fraudulent manipulation of the financial statements or misappropriation of assets. The historic financial statement frauds at Enron and WorldCom were schemes perpetrated or condoned by management at the highest levels. Management's institutionalization of an autonomous internal audit department can ultimately prove to be the critical check when corporate officers are motivated by earnings targets or bonus formulas to manipulate corporate earnings.Īccording to the Securities and Exchange Commission, large corporate fraud schemes are most often carried out by the upper levels of management. The board of directors, particularly the board's audit committee, and management can reduce the exposure of the financial statements to fraud by, among other things, (1) guarding the independence of internal and external auditors from undue influence by management (2) establishing and maintaining internal accounting controls and (3) investigating and correcting conditions that permitted the fraud to be carried out. ![]() Corporate directors should monitor management's establishment and maintenance of safeguards against fraud. ![]()
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