Quality financial reporting starts with the company. Without a strong CFO and controller, an effective finance function and active internal audit department, the financial reporting process can fall short. We only need to look at the number of adjustments proposed by auditors around the world to understand that preparers can and should take greater responsibility for getting their financial statements right.
Preparers do make errors, and sometimes it is intentional. This is fraud. The reason for the intentional misstatement does not matter. It is never acceptable to intentionally misstate a company’s financial results. It serves no one in the capital markets well, and it contributes mightily to a loss of trust.
The EY 2016 Global Fraud Survey shows that a worryingly large proportion of finance executives say they can justify actions to meet financial targets that will misstate reported figures. In total, 16% of respondents globally said they would be prepared to change assumptions in determining values and reserves.