Prevention of Financial Frauds Research Paper Example | Topics and Well Written Essays - 2000 words

Prevention of Financial Frauds - Research Paper Example The paper also discusses about the types of financial frauds according to their nature; inclusive frauds and exclusive frauds. There are two types of frauds according to the people involved in the fraud and these two types are internal frauds and external frauds. Besides defining these frauds, the paper explains how such frauds can be prevented. The paper also focuses on one of the biggest financial scandals; Enron and it explains how the management of Enron was successful in their fraudulent activities. It also highlights the impact of Enron’s case on the overall economy. INTRODUCTION Financial frauds are widely perceived to be deliberately made criminal acts that seriously violate civil law while based on financial transactions and meant to attain myriad personal benefits. For the last so many years, auditors and financial analysts have been emphasizing to eliminate the financial frauds and for this purpose there have been many research conducted on this given topic. With the passage of time and as more and more financial frauds have emerged, the need to fight against these financial frauds have increased enormously and people of all ages have to face consequences of such financial frauds.In criminal law, the word fraud is defined as a planned and calculated deception which is made for some kind of personal gain or to damage another individual. On the other hand, financial frauds mean frauds that occur particularly in the financial statements or financial documents of the company like balance sheet, income statement etc in order to manipulate the financial streng th of the company. Financial Frauds can be planned on a large scale which might have an impact on the overall industry or economy of the country and there might be financial frauds which might not be as large but these frauds would weaken the financial stability of an organization. Both these types of frauds have become a serious issue for everyone who is involved with the organization either directly or indirectly. Since financial frauds could affect the economy and organizations and everyone who is involved with the organization therefore it is critical to stop such financial crimes and to prevent such financial frauds there have been several techniques, tools, applications and methods developed by auditors and financial analysts from all over the world and still more research is being done on the topic (Singleton, & Singleton, 2010). LITERATURE REVIEW It is important for the organization and employees of the organization who are responsible for handling and managing of important and sensitive documents to keep these documents in safe and do not let anyone to have access to such documents as one of the ways through which financial frauds can occur is to have access to such sensitive information. A layered security approach and effective tools are required to handle this dramatic emergency of felonious financial frauds and by controlling who first receives sensitive documents like bank statements, small organizations can prevent financial fraud occurrence (CBIA News, 2007). Financial information of a corporation is used by investors in order to evaluate the company’s progress and growth and its profitability as well as in order to predict the future profitability of the organization. Thus, these financial statements are used by investors to make decision whether they should invest in the company or not. Therefore, one of the greatest risks faced by investors is that the financial sta