CPA attorney, what exactly is accounting fraud?

Hello. This is a CPA attorney at Daeryun Law LLC.

Accounting fraud refers to the act of preparing financial statements that differ from the facts by manipulating the company's assets or profits in a manner contrary to accounting standards, in order to make the company's performance look good.

The term window dressing originally means making only the exterior look good when the substance is not.

Accounting fraud usually involves inflating profits above the actual amount, but there are also cases where profits are recorded lower than the actual amount in order to reduce the tax burden or avoid raising workers' wages.

Such a case is called reverse accounting fraud.

A company whose management has deteriorated may fall into the temptation of inflating its sales and net profit to appear as a sound company, thereby obtaining favorable terms when raising funds in the capital market and reducing financing costs.

However, accounting fraud impedes the accurate judgment of shareholders and creditors and carries the risk of being abused for tax evasion, so it is strictly prohibited by law.

To prevent such problems, a company must have an auditor and undergo an accounting audit by an external certified public accountant, and the accounting audit report is reviewed once more by the Financial Supervisory Service through supervision.

As a result of the supervision, sanctions such as suspension of business or revocation of establishment authorization may be imposed on an accounting firm that failed to detect the accounting fraud, and where an investor or creditor invested after seeing the manipulated financial statements and suffered a loss, they can claim damages.

For details, we recommend obtaining accurate advice through a consultation with a CPA attorney.

A CPA attorney will help with a prompt and accurate resolution by adding legal interpretation to complex accounting and tax matters.