Misrepresentation of financial statements. An accounting fraud case from Turkey
| Date | 29 April 2014 |
| Published date | 29 April 2014 |
| Pages | 215-225 |
| DOI | https://doi.org/10.1108/JFC-04-2013-0028 |
| Author | Cenap Ilter |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Misrepresentation of nancial
statements
An accounting fraud case from Turkey
Cenap Ilter
School of Business-Accounting, Grant MacEwan University,
Edmonton, Canada
Abstract
Purpose – The purpose of this paper is to show the public, in general, and auditors, in particular, that
in the absence of control there is always a risk of fraud. Fraud can be done in various forms. Larceny
may be the most obvious case of fraud, but fraud may be done in many other ways too. Balance sheet
fraud or nancial statements fraud is a broader issue; it is far-fetched than a few hundred dollars of a
larceny case. In nancial statement fraud, the deep down effect may be millions or billions of dollars.
Design/methodology/approach – The paper has been designed based on a fraud theory. The author
has observed the implications of a possible fraud in a real audit case. The fraud theory has been tested
through nancial analysis and audit tests. The theory has then been revised and the existence of a
nancial statement fraud has been proven.
Findings – The paper explores that banks and group companies controlled by unreliable owners can
lead to misuse of public’s funds in accordance with the directives of the owner. Public’s money can be
transferred to other group companies in an illegal manner – in excessive amounts – and never returned
to the bank by means of applying different accounting fraud techniques.
Research limitations/implications – Auditors, who may audit group companies that include a
bank or banks with deposit receiving and lending rights, should pay attention to the transactions
between the group’s bank and the other group companies. The lending may be excessive in amount
and/or never paid back and the nancial statements would be misrepresented covering various fraud
schemes.
Originality/value – The case that the paper deals with reects the author’s own audit experiences.
The names of the companies have been changed but not the essence of the events. From this perspective,
it sheds light onto the path of an auditor who happens to be in a similar situation.
Keywords Fraudulent representation, Interest capitalization
Paper type Case study
1. Conditions for fraud
Three conditions of fraud arising from fraudulent nancial reporting and
misappropriations of assets are described in Section 5,135.012 of the Canadian Institute
of Chartered Accountants Assurance Handbook titled “The Auditor’s Responsibility to
Consider Fraud and Error”. As shown in Figure 1, the following three conditions are
referred to as the fraud triangle:
(1) Incentives/pressures: management or other employees have incentives or
pressures to commit fraud.
(2) Opportunities: circumstances provide opportunities for management or
employees to commit fraud.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Misrepresentation
of nancial
statements
215
Journal of Financial Crime
Vol. 21 No. 2, 2014
pp. 215-225
© Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2013-0028
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