The problem of financial statements fraud


Investors in New York need to be aware of financial statements fraud when they are trying to determine whether to invest in stocks. This is a type of securities fraud that is prevalent within corporate America. There are several signs that a company has manipulated its financial statements that investors should watch for before they choose to invest in a company.

Companies may commit financial statements fraud to try to get around regulations or to defraud investors. Executives might manipulate their companies’ financial statements to qualify for certain types of executive compensation that are based on meeting financial metrics.

It can be difficult to detect this type of securities fraud because the generally accepted accounting standards are flexible. This type of fraud might include inflating earnings to make a company appear stronger than it is during a period or deflating earnings so that the company will look stronger in subsequent periods.

To identify potential financial statements manipulation, investors must be able to perform an analysis of the financial statements. This will require them to understand how to use various formulas and evaluate ratios. Many investors do not have these types of skills, however.

Financial statements fraud can cause investors to lose the money that they have invested because they relied on the companies’ financial reports. People who have lost substantial sums of money because of suspected financial statements fraud may want to consult with experienced securities fraud attorneys. The lawyers might review the statements and perform an analysis of the companies’ finances to determine whether fraud has occurred.