Activity 6 Section 4

Activity 6 Section 4

Research Question

Main objective of the research is to explore the implications of changes in the earnings management structure and how does company approach to earnings management leads to fraud from legitimacy. Research question of this research are as follows:

To what extent company approaches to earning management has been characterized by the fraud management structure?

Why do companies opt for fraudulent practices for improving their financial performance?

To what extent earnings management fraud affect the company in long term?

What approaches are essential for managing the earnings management structure based on the firm size, earnings structure, and financial stability?

How does legitimating laws affect the earnings management continuum?

To what extent earnings management structure differ from legitimacy to fraud in medium and large enterprises?

Research Hypotheses

H1: There has been a significant difference in earnings management structure from legitimacy to fraud in medium and large enterprises.

H2: Legitimating laws have not proven effective over earnings management continuum in controlling frauds.

H3: Earnings management fraud negatively affects the company's position in long term.

H4: Companies opt for fraudulent practices for improving their financial performance.

Annotated Bibliography

Clikeman, P. M. (2009), Called to account: fourteen financial frauds that shaped the American accounting profession. 1st edition. Routledge.

Eric Stein defrauded 1,800 investors of $34 million through a Ponzi scheme targeting those over age fifty. Stein became a fugitive from justice, but was caught and sent to prison for eight years. Starcash Inc., a Florida firm, was selling payday loan investments promising returns of 30 to 42 percent. Investors lost over $7 million in an eight-month period from that operation.

Kevin Lawrence obtained $91 million from 5,000 investors through claims that his company, Znetix Inc., was about to make a highly profitable IPO. No such offering was made. Lawrence and two of his colleagues pleaded guilty to criminal charges. Lawrence was sentenced to twenty years in prison.

Giroux, G. (2003), Detecting earnings management. 1st edition. Wiley Publisher.

A regulatory sweep by state and federal authorities was conducted against promissory note schemes that were targeting elderly investors. A worldwide sweep was undertaken in twenty-eight countries to track down persons committing fraud on the Internet. Governments participating included the Office of Fair Trading in England, South Korea's Fair Trade Commission, and the Federal Trade Commission in the United States.

Kedia, S., & Philippon, T. (2005), The economics of fraudulent accounting. 2nd edition. National Bureau of Economic Research.

In May 1999, the SEC filed cases against twenty-six companies and individuals charging that the defendants had sold unregistered securities and made fraudulent profit claims through the Internet. Abuses through the Internet included gambling through cybercasinos, unregistered offerings of stock, and unwarranted claims by brokers as to the performance of specific securities. In one case, the SEC charged that unregistered securities were sold to 20,000 investors at a cost of $3 million through the Internet.

Kranacher, M., Riley, R., & Wells, J. T. (2011), Forensic accounting and fraud examination. 2nd edition. John Wiley Publishers.

The number of class action lawsuits filed against foreign companies listing their stock in ...