Detecting Accounting Fraud Before It's Too Late

CHAPTER 6Illegal Accounting Manipulations

The world's leading company.

—Plaque in the lobby of Enron's headquarters

6.1 ACCOUNTING CRIME

Illegal accounting manipulation is a practice that isn't allowed by legislation. It is an accounting crime since it implies falseness in the accounting documents. In most countries, accounting crime is punished with prison. In this case, falseness is understood as the omission of information or the provision of fictitious information. Falseness is considered a crime when it prevents knowing the true financial situation of the company and, also, causes a loss. And, there must be fraud, meaning, an awareness that the law is being infringed and the intention to cause damage harming a third party. Those responsible for the crime are the authors and their accomplices.

Illegal accounting manipulation is usually done by keeping different accountings, also known as double accounting, where one is used on tax declarations, and the other one allows us to know the company's real situation. When illegal manipulations are discovered, there can be fines or even prison sentences. These rulings affect those responsible for the crime, who usually are the businessman and the accountant (when acting as an accomplice to the businessman).

THE CASE OF THE COMPANY THAT KEPT A TRIPLE ACCOUNTING

It was a company that kept an official accounting that was the one used for tax declaration and the deposit of accounts in the Mercantile Registry. Also, it kept an accounting ...