Financial statement fraud a forensic expert challenge on covid-19

Financial statements is an annual report of business operations usually in monetary terms to the shareholders prepared by the management, certified by external auditors, investors decision depends on it . Forensic expert focus on impacts of covid-19 on financial statement of businesses.
This steps you can proactively take to help respond to and recover from the 
outbreak and mitigate potential fraud and financial crime risks.
sensitive to the pressures that could result 
in financial statement manipulations at the 
corporate or operating subsidiary level. 
Further, management should recognize 
that the environment created by adverse 
events such as COVID-19 could lead to 
increased fraud by employees (e.g., asset 
misappropriation or bonus 
maximization schemes). 
In particular, organizations should consider 
the following risks:

Overstatement of revenue—To make 
up for decreased consumer spending, 
companies may endeavor to deliberately 
fabricate revenue to boost bottom lines 
and show how management was able 
to persevere in a challenging customer/
business environment. 
Understatement of allowances and 
—Companies have numerous 
valuation accounts, allowances, and 
reserves including—but not limited to—
those for inventory, accounts receivable, 
insurance claims incurred but not 
recorded, income taxes, and contingent 
liabilities. Management may be motivated 
to intentionally manage these reserves 
to avoid additional charges to the 
bottom line.
• Manipulation of valuations and 
—Organizations use 
forecasts as a key element in the valuation 
of assets such as inventory, goodwill, 
financial instruments, investments (such 
as portfolio companies and debt/equity 
securities issued by entities), and certain 
long-term contracts. Disruptions to 
supply chains and the volatility in financial 
The coronavirus disease (COVID-19) 
outbreak has quickly advanced on a 
global scale and responses to it continue 
to rapidly evolve. The financial impact of 
COVID-19 will likely put enormous pressure 
on corporations’ financial results and 
present potential challenges for individual 
employees. This pressure may increase 
the temptation for individuals to engage 
in improper acts in order to address their 
immediate financial needs or resort to 
financial statement manipulation to meet 
stakeholder expectations. 
For some, as these financial pressures 
mount, the line separating acceptable 
from unacceptable behavior can become 
blurred. At the same time, controls 
such as segregation of duties may be 
weakened due to work force displacement 
or distraction.

Organizations need to be markets may result in organizational 
challenges to record such assets at their 
net realizable or fair values. Given the 
inherent uncertainty in valuing such assets 
in turbulent times, some companies may 
take advantage and consider intentionally 
delaying the recording of such losses or 
may attempt to overvalue certain assets in 
order to generate insurance recoveries.
• Restructurings and “big bath” 
—Given the strong probability 
of outbreak-related financial losses, 
affected companies may seek to write-off 
underperforming assets and/or record 
charges as part of larger organizational 
restructurings, sale, or closure of parts of 
their business that are either marginally 
associated with the impact from COVID-19 
or not associated at all.
Capitalization of expenses—It may 
be tempting for companies to capitalize 
expenses and deduct them over several 
accounting periods rather than expense 
them immediately. Outbreak-related costs 
may be substantial, and executives may be 
inclined to spread the costs out over a 
few years, rather than expensing them 
when incurred.
Disclosure fraud—Companies may 
be motivated to avoid fully disclosing 
the impact of COVID-19 on its overall 
business results, particularly with respect 
to risks, uncertainties, contingencies, 
and representations contained in their 
public statements, and regulatory 
filings. For example, particular concerns 
may arise regarding companies’ or 
their counterparties’ ability to satisfy 
contractual obligations. The disclosure 
should also include an assessment 
of whether reliance on force majeure 
provisions or common law principles of 
nonperformance may apply. The adequacy 
and sufficiency of such disclosures may 
lead to claims of securities fraud by 
regulators and investors. 
Margin manipulation—Many companies 
are already experiencing significant decline 
in revenues, closures of plants, facilities, 
and storefronts, reduced transaction fees, 
and declines in assets under management, 
all while paying their employees and 
supporting current-state cost structures. 
Each of these actions increases the risk that 
an organization’s profit margins could be 
manipulated. There are many ways in which 
this can be done, but organizations should 
consider these risks and be aware of how it 
could happen at their company. 
Pressures arising from “stock-drop” 
—Plaintiffs’ securities firms may 
seek to capitalize on stock price drops 
resulting from the crisis, leading to a slew 
of new case filings. Efforts to avoid costly 
litigation may lead to financial manipulation 
resulting in the misrepresentation of not 
only a company’s financial statements and 
disclosures, but also of key performance 
indicators in an effort to create “better than 
expected” operating reports. 
Internal Controls over Financial 
Reporting (ICFR)
—The current economic 
environment may result in increased 
fraud risks related to internal controls. As 
many organizations move to a virtual work 
environment, there is a significant risk that 
fraudsters may find new ways to override 
existing internal controls, especially those 
critical to ICFR. Such controls may include, 
but are not limited to: segregation of duties, 
delegation of authority, and information 
systems access. With a potential decrease 
in workforce, the rapidly changing nature of 
working environments, and the possibility 
of changes in individual responsibilities, 
modifications to existing controls may 
not happen with the same speed, or new 
controls may be implemented without 
sufficient testing of their design and/or 
effectiveness. Accordingly, the nature, 
timing, and extent of diligence performed 
in a changing control environment create 
increased opportunity for fraud.