Detecting Accounting Fraud Before It's Too Late

CHAPTER 2Accounting Fraud: An Ancient Practice

A merchant wanted to know how much two plus two was.

The accountant, after ensuring no one could hear them, murmured in his ear:

“How much do you want it to be?”

—Anonymous Venetian

2.1 THE FIRST ACCOUNTING FRAUDS

Recent accounting scandals promote the belief that this is a problem of the nowadays' world, but actually it's an ancient problem and inherent to the human being. As José Saramago (2000) reminds us: “Man is capable of the best and the worst.” Accounting fraud exists since the existence of accounting. The first evidence of the existence of accounting is in ancient Mesopotamia, over 4,000 years ago, and it was related to the commerce and the tributes that financed the activity of the temples. From those times are the first accounting records on clay boards or papyruses that informed the profits obtained with the harvests and they were the basis for calculating taxes. From those remote years there is evidence of accounting frauds like the ones mentioned below.

Years later, to avoid these scams, clay tablets or papyruses started being guarded in clay envelopes that weren't opened until they were delivered at the temples.

Centuries later, around 400 BC, in Ancient Egypt, Babylonia, and India, there were control systems of the entrances and exits of stores that were oral, since movements were explained out loud to tribute inspectors. In fact, these controls were the first audits (from Latin audire, which means to hear). Also ...