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Fraud
Positive Accounting Theory
The positive theory of accounting is contrasted with the normative theory of accounting -- it predicts what accounting practices actually happen, as opposed to stating prescriptivist optimal accounting practices. The positive theory of accounting contains three major hypotheses within the opportunistic perspective, that is, the idea that managers act in their own self-interests.
First, the "management compensation hypothesis" predicts that managers whose pay is tied up with their firm's performance will tend to manipulate the accounting method so that their performance will seem better than it actually was. In other words, they will move profits from future periods into the current period.
Second, the "debt hypothesis" predicts that managers will attempt to pay the interest and principal of the debt they have accumulated in the business, so tying the bonus to debt makes the firm manager more likely to select accounting procedures that shift reported earnings from future periods to the current period.
Finally, the "political cost hypothesis" predicts that managers will attempt to choose accounting procedures that defer reported earnings from current to future periods if the firm will suffer political costs because of profits.
Each of these hypotheses explains a different incentive structure for the manager to commit accounting statement fraud. In the first, the manager will move profits from future periods into the current period. Even if they would receive a bonus on that money in the next period, that future dollar is discounted so the manager is incentivized to move it to the current period. In the second, the manager also movies earnings to the current period from the future period, making it less likely to violate a debt agreement -- though technically they are incentivized to attempt to move the earnings into any period that would not violate the agreement. In the final one, having more earnings can lead to increased political pressure. This could also lead to new taxes or even regulations for large firms or industries.
Accounting Theory Why accounting research has had so little impact on preventing such failures in accounting practice? The modern economic society has seen many scientific researches that have been directed at establishing the nature of performance of economic activities. The present world is a literate society that depends on the technicalities of life and assumption of activities as they happen in the natural society. In order to have a genuine avenue of
The examples cited by Thomas and Smith (1997) are the political concern with discrimination in insurance pricing, leading to numerous papers on underwriting; and proposals to change accounting standards for pension costs, leading to a flurry of effort to defend traditional actuarial approaches, or argue for alternative approaches. Another example cited by Thomas and Smith (1997) is that normative accounting theory are stimulated by the emergence of "orphan estates,"
This is important, because it shows how there is the potential for both harmonization and division. Yet, once you look at what is taking place around the world, it is obvious that a common set of ideas are being readily accepted in different countries around the world. A good example of this can be seen by looking no further than China, where they announced that the country would follow IFRS
" While there are factors like peer pressure and authority that come into play, some research claims to have isolated significant features of an individual's character that make them more likely to commit acts of fraud, bribery and falsification in the corporate context (27, 2009). For example, those people with "high levels of ambition were more likely to transgress moral codes, competitively stab colleagues in the back and make dubious
Sarbanes-Oxley Act of 2002 in reducing fraudulent financial reporting Introduction to Fraudulent Financial Reporting Available research on financial statement fraud relies mostly on anecdotal evidence (for example, Wells, 2001, 2002, 2004a, and 2004b; Rezaee, 2003). This evidence offers advice on how mechanisms related to the fraud triangle can be curtailed. It leads to theoretical sense to reduce factors which lead to more instances of fraud. However, deterrence and established deterrence methods
audit committee characteristics affect firm performance in Saudi Arabia? What are audit committees? Many studies have been carried out to demonstrate the manner in which audit committees reports affect the overall performance of companies in Saudi Arabia and elsewhere in the world. The interest in conducting audit of accounts in different firms peaked in the early 1960's. Two main approaches of doing accounts investigations have emerged in financial literature. The first