Fraud affecting the assets;

              14 HASKINS & SELLS February
Total January February
Budget Actual Budget Actual Budget Actual
Cost of goods sold
Gross profit
Selling expenses
Administrative expenses
Total
Net profit
Sales
Fraud Affecting the Assets
FRAUD in accounts is no new subject.
Practicing accountants have been
coping with the appropriative inclinations
of abnormal individuals in business for
years. Book-writers have discussed the
subject at great length and from many
angles. However, the frequency with
which fraud cases now are appearing, and
the relation which the matter has to the
practicing accountant and his clients, seem
to justify some further consideration of the
subject.
Fraud relating to the assets usually re­sults
in either overstatement or under­statement
thereof. The motive for over­statement
is to inflate values, thereby in­creasing
the surplus for the purpose of
gaining favorable credit consideration, or
deriving illegitimate gain on the refinancing
of a business enterprise or on the sale of the
assets pertaining thereto. The benefit in
cases of the latter kind accrues to one or
more principals involved as individuals in
the capital transaction.
The motive for understatement is to
conceal misappropriations of assets. The
benefit in instances of this character is
derived as a rule by some subordinate
employe, occasionally in collusion with
other employes or with confederates out­side
of the organization.
The officers of a certain corporation over­valued
the inventories, thereby swelling
the surplus, improving the current position,
and inducing the banks to extend credit
which otherwise probably would not have
been extended. An officer of another cor­poration
caused the quantities in the in­ventory
to be increased without warrant,
thereby inflating the inventories, and as a
result received more new shares in a re­financing
and exchange scheme than he was