1.4. Consequences of Fraudulent Reporting
Fraudulent financial reporting can have significant con- sequences for the organization and its stakeholders, as well as for public confidence in the capital markets. Pe- riodic high-profile cases of fraudulent financial reporting also raise concerns about the credibility of the US fi- nancial reporting process and call into question the roles of management, auditors, regulators, and analysts, among others. Moreover, corporate fraud impacts organizations in several areas: financial, operational and psychological [10]. While the monetary loss owing to fraud is signifi- cant, the full impact of fraud on an organization can be staggering. In fact, the losses to reputation, goodwill, and customer relations can be devastating. When fraudulent financial reporting occurs, serious consequences ensue. The damage that result is also widespread, with a some- times devastating “ripple” effect [6]. Those affected may range from the “immediate” victims (the company’sstockholders and creditors) to the more “remote” (those harmed when investor confidence in the stock market is shaken). Between these two extremes, many others may be affected: “employees” who suffer job loss or dimin- ished pension fund value; “depositors” in financial insti- tutions; the company’s “underwriters, auditors, attorneys, and insurers”; and even honest “competitors” whose reputations suffer by association.