Accounting Changes
Improper disclosures of accounting changes relating to financial statement fraud usually involves the following: [1] (pp. 1.322-1.325)

• Accounting principles – Fraudsters may fail to restate financial statements or disclose the cumulative effect of a change in accounting principle they have made simply to boost earnings.
  
• Estimates – They may fail to disclose significant changes in estimates such as the useful lives and estimated salvage values of depreciable assets, or the estimates underlying the determination of warranty or other liabilities. 
  
• Reporting entities – They may secretly change the reporting entity, by adding entities owned privately by management, or excluding certain company-owned units, in order to improve reported results. 
  

Asset / Revenue Overstatements
Overstating assets and revenues falsely reflects a financially stronger company by inclusion of fictitious asset costs or artificial revenues. The method results in increased equity, net worth, and earnings per share for the company [1] (pp. 1.307-1.308).

Asset / Revenue Understatements
Understating assets and revenues falsely reflects the earnings of the organization. The method results in decreased equity, net worth, and earnings per share for the company. This is often seen in cases where the organization or project is funded by the government. Additional funding is often based on asset amounts. The understatement can be done directly or through improper depreciation (ACFE, 2005, p. 1.318).

This is also seen when a publicly traded company has already met analysts’ projections for the quarter and they are afraid they could miss the expectations for the following quarter. Here, they “smooth” revenues by moving some of them from the current period to subsequent periods; thereby meeting revenue targets in all periods.

Business Combinations
The manipulation of the allocation of the purchase price of an acquired business in order to inflate future earnings [1] (p. 1.315). Companies are required to allocate the purchase price they have paid to acquire another business to the tangible and intangible assets of that business. Any excess of the purchase price over the value of the acquired assets is treated as goodwill. Two common schemes include: [1] (pp. 1.316-1.317)

• to over-allocate the purchase price to in-process research and development assets, in order to then write them off immediately; and/or
• establish excessive reserves for various expenses at the time of acquisition, intending to quietly release those excess reserves into earnings at a future date. 

Concealed Liabilities 
Understating liabilities to make the company look more profitable. Some examples include: [1] (pp. 1.319-1.320)

• Failure to record a liability, e.g. judgements against the company and vendor invoices; and
• Creating debit memos for chargebacks to vendors for fictitious rebates or allowances.
  

Concealed Liabilities & Expenses
The manipulation of the financial statements by understating liabilities and expenses to make a company appear more profitable [1] (p. 1.319).

Core Fraud
Those fraud schemes all organizations experience risk from, regardless of industry [2] (p. 25).

Executive Compensation / Employee Benefits
Understating executive compensation and employee benefits liabilities to make the company look more profitable.

Expenses Recorded in the Wrong Period
A method of financial statement manipulation in which expenses are intentionally recorded in an improper period [7] (p. 327).

Fictitious Revenues
Fictitious revenues involve the recording of goods or services sales that did not occur [1] (p. 1.308).

Financial Statement Fraud
Financial statement fraud is the deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive financial statement users [1] (p. 1.303). Financial statement fraud usually involves overstating assets, revenues, and profits or understating liabilities, expenses, and losses [3]. 

Fixed Asset Valuations
The fraudulent overstatement of fixed assets [1] (p. 1.317).

Fraud
A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment [4].

Improper Asset Valuations
The fraudulent overstatement of an asset [1] (pp. 1.315-1.316).

Improper Capitalized Expenses
Overstating income by the capitalization of expenses as assets rather than being expensed during the current period. As assets are depreciated, income will be understated in subsequent periods [1] (pp. 1.321-1.322). Capitalization of expenses as assets rather than being expensed during the current period has an impact of ↓ expenses and ↑ assets.

Improper Disclosures
Accounting principles require that financial statements include all the information necessary to prevent a reasonably discerning user of the financial statements from being misled. The notes should include narrative disclosures, supporting schedules, and any other information required to avoid misleading potential investors, creditors, or any other users of the financial statements. Management has an obligation to disclose all significant information appropriately in the financial statements and in management’s discussion and analysis. In addition, the disclosed information must not be misleading. Improper disclosures relating to financial statement fraud usually involve the following: [1] (pp. 1.322-1.325)

• accounting changes
• liability omissions
• management fraud
• related-party transactions
• subsequent events

Intangible Asset Valuations
The fraudulent overstatement of intangible assets. 

Inventory Valuations
The fraudulent overstatement of inventory [1] (pp. 1.315-1.316).

Lease & Special Purpose Entities (SPE) 
Lease fraud occurs when an organization misrepresents that leased equipment or property is owned by that organization, when in fact it is not.

A special purpose vehicle, also called a special purpose entity (SPE), is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt. For this reason, a special purpose vehicle is sometimes called a bankruptcy-remote entity. If accounting loopholes are exploited, these vehicles can become a financially devastating way to hide company debt [8].

Liability Omissions
A deliberate attempt to conceal from the financial statements a liability that has already been incurred [7] (p. 327).

Management Fraud
Management has an obligation to disclose to the shareholders significant fraud committed by officers, executives, and other in positions of trust. Withholding such information from auditors would likely also involve lying to auditors, an illegal act in itself [1] (p. 1.323).

Overstated Liabilities & Expenses
The manipulation of the financial statements by overstating liabilities and expenses to make a company less profitable.

Pressure Risk
When an organization experiences circumstances where there is a temptation to commit fraud, but it has not yet acted upon it.

Related-Party Transactions
A transaction that occurs when a company does business with another entity whose management or operating policies can be controlled or significantly influenced by the company or by some other party in common [7] (p. 327).

Returns / Allowances / Warranties
Improper returns and allowances liabilities occur when a company fails to accrue the proper expenses and related liabilities for potential product returns or warranty repairs. In warranty liability fraud, the liability is usually either omitted altogether or subsequently understated. Another similar area is the liability resulting from defective products (product liability) [1] (p. 1.322).

Revenue Recognition

The international accounting standard IFRS 15: Revenue from Contracts with Customers [5][6] established how an organization recognizes revenue when there is a transfer of promised goods or services to the customer. The following five summarized steps are required to recognize revenue in the accounting records of the organization:

1.  identify the customer contract(s);
2.  identify the performance obligations in the contract;
3.  determine the transaction price;
4.  allocate the transaction price to each performance obligation; and
5.  recognize revenue when the performance obligations have been satisfied.

Revenue recognition fraud occurs when the principles of revenue recognition are manipulated to falsify income.

Sales Shift to a Later Period
A method of financial statement manipulation in which revenue is intentionally recorded in a later period [1] (adapted from p. 327). Sales Shifted to a Later Period fraud is the recording of revenue in later periods. This can be done to shift revenues between one period and the next, decreasing earnings as desired [1] (adapted from p. 1.310).

Subsequent Events

Events occurring or becoming known after the close of the period may have a significant effect on the financial statements and should be disclosed. Fraudsters typically avoid disclosing court judgements and regulatory decisions that undermine the reported values of assets, that include unrecorded liabilities, or that adversely reflect upon management integrity [1] (p. 1.323).

Timing Differences
A method of financial statement manipulation in which revenue is intentionally recorded in an improper period [7] (p. 327).

Understated Asset Valuations
Understating assets falsely reflects the earnings of the organization. The method results in decreased equity, net worth, and earnings per share for the company. This is often seen in cases where the organization or project is funded by the government. Additional funding is often based on asset amounts. The understatement can be done directly or through improper depreciation  [1] (p. 1.318).

Understated Intangible Assets
The fraudulent understatement of intangible assets.

Understated Revenues
Understating revenues falsely reflects the earnings of the organization. The method results in decreased equity, net worth, and earnings per share for the [1] (p. 1.318). This is observed when a publicly traded company has already met analysts’ projections for the quarter and they are afraid they could miss the expectations for the following quarter. Here, they “smooth” revenues by moving some of them from the current period to subsequent periods; thereby meeting revenue targets in all periods.