THE IMPORTANCE OF FINANCIAL STATEMENT AUDIT IN UNCOVERING FRAUD AND ANOMALIES

OF COMPANIES IN TACLOBAN, CITY

(A Qualitative Study)

Sofia Mae Alberca | ACCRESM-469

Aimee Delgado | ACCRESM-473

Lorieline Ocampo | ACCRESM- 473

Saint Paul School of Professional Studies

April, 2022
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I. RATIONALE

Many accountants make deliberate financial misstatements in order to present financially

appealing financial statements. Overstating revenues, poor asset valuation, concealing liabilities and

expenses, and improper disclosures could all be used to attract more investors. According to the

Association of Certified Fraud Examiners, “Accounting fraud is the deceit or misrepresentation that

an individual or entity makes knowing that the misrepresentation may result in some unauthorized

gain to the individual, the entity, or some other party.” Financial statement fraud is the least common

sort of fraud in the business sector, but it is usually the most expensive crime when it is done,

according to them. As a matter of fact, in a study conducted by (Fernandez et al., 2012), they have

successfully predicted the likelihood of Philippine financial firms listed by Securities and Exchange

Commission to commit fraud through publicly available information 88.89% of the time.

Corporate fraud, particularly financial statement fraud, is one of the greatest risks to white-

collar crime, according to the Federal Bureau of Investigation. The majority of the charges, according

to the agency, involve accounting schemes that distort share prices, financial data, and other

valuation methodologies to make a public firm appear more successful. Among various types of

financial statement fraud are overstating revenues by recording future expected sales, inflating an

asset’s net worth by knowingly failing to apply an appropriate depreciation schedule, hiding

obligations and/or liabilities from a company’s balance sheet, and incorrectly disclosing related-

party transactions and structured finance deals. Cookie-jar accounting techniques are another type

of financial statement fraud, in which companies understate revenues in one accounting period and

save them as a reserve for future periods with poorer results, all in the name of reducing the

impression of volatility.
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Anomalies, likewise aid in determining whether or not a fraudulent conduct was done in the

financial accounts. When revenue growth does not correlate to cash flows, inconsistent use of

depreciation and estimate methodologies, missing papers and documents, and insufficient internal

controls when many employees have direct access to such information, fraud has been perpetrated.

II. PROBLEM STATEMENT

This study aims to answer the following questions:

1. What are the effects of fraud and anomalies in the FS and companies?

2. What is the responsibility of the auditor when it comes to fraud in the FS audit?

III. IMPORTANCE OF THE STUDY

Fraud is only discovered after it has occurred. Measures are then implemented to prevent it

from happening again. Businesses want to find ways to prevent fraud from taking place, or, if that’s

not possible, to detect it before significant damage is done (Guthrie, 2017).

Fraudulent financial reporting has been a long-standing problem. To assess the impact of

financial statements audit on fraud and anomalies in the company, the study aims to assess the effect

of fraud and anomalies in companies and how it will avoid. This study will help the companies to have

a plan in place as preventing fraud is much easier than recovering your losses after a fraud has been

committed.
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IV. METHODS

This study will employ a qualitative research approach with exploratory methods. Qualitative

research methodology approach is represented by distinctive techniques and tools (Sekaran 2003).

It involves non-numeric data to provide deeper understanding of phenomena within its context and

creates a strong relationship between the phenomena under the study and the researcher. This

method provides the best gaining insight to comprehend the issues. Primary data will be collected

for this research because primary data is more dependable and accurate. A questionnaire is an

organized technique to collect primary data.

This study will be conducted at Tacloban City. The target population to accomplish this

research involves auditors and Certified Public Accountants (CPA) in business establishment.

According to AU Section 110, auditors has a responsibility to plan and perform the audit to obtain

reasonable assurance about whether the financial statement are free of material misstatement,

whether caused by error or fraud. On the other hand, accountants are responsible for examining

financial statements to ensure accuracy and compliance with existing laws and regulations.

Data will be collected through survey forms as its instruments in gathering the necessary data

from the auditors and accountants of companies in Tacloban City. The range of their industry setting

will help the researchers to understand the phenomena in a broader scope. Simple random sampling

is used to make statistical inferences about a population and it helps ensure high internal validity

(Thomas, 2020). It provides each individual or member of a population with an equal and fair

probability of being chosen. The simple random sampling method is one of the most convenient and

simple sample selection techniques.

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V. LIMITATIONS OF THE STUDY

This study will be conducted at Tacloban City. This research is a qualitative type of research, it

is limited to only describing and explaining the phenomena. The respondents of this study is limited

to the accountants and auditors in business establishment since this study focuses in detecting fraud

and anomalies in the business. A simple random sampling method is use in order to lessen the number

of companies that the researcher can interview due to the current situation or pandemic.

VI. BIBLIOGRAPHY

Bloomenthal, A. (2021). Detecting Financial Statement Fraud. Guide To Financial Crime and Fraud.

https://www.investopedia.com/articles/financial-theory/11/detecting-financial-fraud.asp

Chenguel, M. B. (2020). Financial Fraud and Managers, Causes and Effects. Corporate Social

Responsibility. https://doi.org/10.5772/intechopen.93494

Lokanan, M., Tran, V., & Vuong, N.H. (2019). Detecting anomalies in financial statements using machine

learning algorithm: The case of Vietnamese listed firms. Asian Journal of Accounting Research,

4(2), 181-201. https://doi.org/10.1108/AJAR-09-2018-0032

Ramos, M. (2003). Auditors’ Responsibility for Fraud Detection. Journal of Accountancy.

https://www.journalofaccountancy.com/issues/2003/jan/auditorsresponsibilityforfrauddete

ction.