1.4. Consequences of Fraudulent Reporting
Fraudulent financial reporting can have significant consequences for the organization and its stakeholders, as well as for public confidence in the capital markets. Periodic high-profile cases of fraudulent financial reporting also raise concerns about the credibility of the US financial 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. While the monetary loss owing to fraud is significant, 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 sometimes devastating “ripple” effect. Those affected may range from the “immediate” victims (the company’s stockholders 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 diminished pension fund value; “depositors” in financial institutions; the company’s “underwriters, auditors, attorneys,
and insurers”; and even honest “competitors” whose reputations suffer by association.